20-F 1 f20apsa2013a.htm 20F APSA 2013 f20apsa2013a.htm
 
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 20-F
 
¨
REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended: June 30, 2013
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
OR
 
¨
SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Date of event requiring this shell company report             
 
For the transition period from              to             
 
Commission file number: 000-30982

Alto Palermo S.A. (APSA)
(Exact name of Registrant as specified in its charter) 

Alto Palermo S.A. (APSA)
(Translation of Registrant’s name into English)
 
Republic of Argentina
(Jurisdiction of incorporation or organization)
 
Moreno 877, 22nd Floor
Ciudad Autónoma de Buenos Aires, Argentina
(Address of principal executive offices)
 
Matías Ivan Gaivironsky – CFO
Tel  (+ 54 11) 4323 7449 – finanzas@altopalermo.com.ar
Moreno 877 24th Floor (C1091AAQ) Ciudad Autónoma de Buenos Aires
 
Securities registered or to be registered pursuant to Section 12(b) of the Act: None
 
             
Title of each class
  
   
  
Name of each exchange on which registered
ADS, each representing
forty shares of Common Stock
  
     
  
Nasdaq National Market of the
Nasdaq Stock Market
Common Stock, face value ten cents of Peso per share
  
     
  
Nasdaq National Market of the
Nasdaq Stock Market*
 
*
Not for trading, but only in connection with the registration of American Depositary Shares pursuant to the requirements of the Securities and Exchange Commission.
 
Securities registered or to be registered pursuant to Section 12(g) of the Act: None
 
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act: None

The number of outstanding shares of the issuer’s common stock as of June 30, 2013 was 1,260,140,508
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act:    ¨  Yes    x  No
 
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934.     x   Yes     ¨   No
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     x   Yes     ¨   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     ¨   Yes     x   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.(check one):
 
Large accelerated filer ¨    Accelerated filer x    Non-accelerated filer ¨
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
             
U.S. GAAP   ¨
    
International Financial Reporting Standards as issued            x
by the International Accounting Standards Board
  
 
  
Other  ¨
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.
 
¨ Item 17     ¨ Item 18
 
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).     ¨   Yes     x   No
 
 
 

 
 
 
ALTO PALERMO S.A. (APSA)
 
     Page No.
 
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Item 1
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Item 2
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Item 3
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Item 4
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Item 4A
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Item 5
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Item 6
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43
 
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Item 7
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Item 8
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Item 9
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49
 
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Item 10
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Item 11
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Item 12
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1

 
Item 13  
57
Item 14
57
Item 15
57
 
57
 
57
 
57
 
57
Item 16
57
Item 16 A
57
Item 16 B
58
Item 16 C
58
Item 16 D
58
Item 16 E 
58
Item 16 F
58
Item 16 G
59
Item 16 H Mine Safety Disclosures 60
    60
Item 17
60
Item 18
60
Item 19
60
 
61


 
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements.
 
This annual report includes forward-looking statements, principally under the captions “Risk Factors”, “Business Overview” and “Operating and Financial Review and Prospects”. We have based these forward-looking statements largely on our current beliefs, expectations and projections about future events and financial trends affecting our business. Many important factors, in addition to those discussed elsewhere in this annual report, could cause our actual results to differ substantially from those anticipated in our forward-looking statements, including, among other things:
 
Factors that could cause actual results to differ materially and adversely include but are not limited to:
 
changes in general economic, business or political or other conditions in Argentina or changes in general economic or business conditions in Latin America;
 
inflation, currency fluctuations and fluctuations in prevailing interest rates;
 
changes in customer demand and preferences, as well as the financial condition of our tenants and customers;
 
competitive conditions in the shopping center industry in Argentina as a whole and particularly in our areas of operations;
 
our ability to implement our business plan, including our ability to secure financing on terms acceptable to us;
 
changes in the retail market in Argentina;
 
existing and future laws and government regulations applicable to our business;
 
increases in our costs;
 
interests of and actions taken by, our controlling shareholders, including any resulting conflicts of interest;
 
our ability to integrate businesses or assets we acquire into our existing business;
 
events of force majeure; and
 
the risk factors discussed under Item 3 (d) Risk Factors on page 8.
 
The words “believe”, “may”, “will”, “aim”, “estimate”, “continue”, “anticipate”, “intend”, “expect”, “forecast”, “foresee”, “understand”, and similar words are intended to identify forward-looking statements. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of future regulation and the effects of competition. Forward-looking statements speak only as of the date they were made, and we undertake no obligation to update publicly or to revise any forward-looking statements after we distribute this annual report because of new information, future events or other factors. In light of the risks and uncertainties described above, the forward-looking events and circumstances discussed in this annual report might not occur and are not guarantees of future performance.
 
You should not place undue reliance on such statements which speak only as of the date that they were made. These cautionary statements should be considered in connection with any written or oral forward-looking statements that we might issue in the future.
 

As used throughout this annual report, the terms “Alto Palermo”, the “Company”, “we”, “us”, and “our” refer to Alto Palermo S.A. (APSA), together with our consolidated subsidiaries, except where we make clear that such terms refer only to the parent company.
 
In Argentina the standard measure of area in the real estate market is the square meter (m2), while in the United States and certain other jurisdictions, the standard measure of area is the square foot (sq. ft.). All units of area shown in this annual report (e.g., gross leasable area of buildings and size of undeveloped land) are expressed in terms of square meters. One square meter is equal to approximately 10.764 square feet.
 
As used herein: “GLA or gross leasable area”, in the case of shopping centers, refers to the total leasable area of the property, regardless of our ownership interest in such property (excluding common areas and parking and space occupied by supermarkets, hypermarkets, gas stations and co-owners, except where specifically stated).
 
Financial Statements

This Annual Report contains our audited consolidated financial statements as of June 30, 2013 and 2012 and as of July 1, 2011 and for our fiscal years ended June 30, 2013 and 2012 (our “audited consolidated financial statements”). Our audited consolidated financial statements included elsewhere herein have been audited by Price Waterhouse & Co. S.R.L., Ciudad Autónoma de Buenos Aires, Argentina, a member firm of PricewaterhouseCoopers, an independent registered public accounting firm (“Price Waterhouse & Co.”) whose report is included herein.

Pursuant to Resolution No. 562/09 of the Comisión Nacional de Valores ("CNV"), as subsequently amended by Resolution No. 576/10, all listed companies in Argentina with certain exceptions (i.e. financial institutions and insurance entities) were required to present their consolidated financial statements for accounting periods beginning on or after January 1, 2012 in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). Therefore, we have prepared our audited consolidated financial statements under IFRS for the first time for our financial year ended June 30, 2013, which included comparative financial information for the year ended June 30, 2012. All IFRS standards issued by the IASB effective at the time of preparing the audited consolidated financial statements have been applied. In addition, we have applied certain IFRS standards which were not effective as of June 30, 2013 but for which earlier adoption was permitted.
 
The opening IFRS statement of financial position was prepared as of our transition date of July 1, 2011. Prior to the adoption of IFRS, we prepared our consolidated financial statements in accordance with generally accepted accounting principles used in Argentina, as set forth by the Federación Argentina de Consejos Profesionales de Ciencias Económicas (“FACPCE”) and as implemented, adapted, amended, revised and/or supplemented by the Consejo Profesional de Ciencias Económicas de la Ciudad Autónoma de Buenos Aires (“CPCECABA”) (collectively “Argentine GAAP”). We also complied with the regulations of the CNV.
 
The application of IFRS 1 “First Time Adoption of IFRS” required us to adopt accounting policies based on the standards and interpretations effective at the reporting date of our first IFRS financial statements (June 30, 2013). As a result of adopting IFRS, we have changed many of our previous accounting policies. These IFRS accounting policies have been applied consistently in preparing our consolidated financial statements, and in the preparation of the opening IFRS statement of financial position at transition date.
 
In preparing the opening IFRS statement of financial position, we have adjusted amounts reported previously in our consolidated financial statements prepared in accordance with Argentine GAAP. An explanation of how the transition from Argentine GAAP to IFRS has affected our financial performance and financial position is set out in the following table.
 
   
July 1, 2011 (1)
   
June 30, 2012 (1)
 
Total shareholders’ equity under Argentine GAAP attributable to Alto Palermo S.A.
    788,274       828,047  
Revenue recognition – “scheduled rent increases”                                                                                                         
    47,546       74,863  
Revenue recognition – “letting fees”                                                                                                         
    (35,447 )     (44,446 )
Trading properties                                                                                                         
    (25,694 )     (16,033 )
Pre-operating and organization expenses 
    (21,961 )     (20,903 )
Goodwill                                                                                                         
    27,685       25,651  
Non-current investments – financial assets 
    12,255       6,090  
Initial direct costs on operating leases                                                                                                         
    232       351  
Tenant deposits                                                                                                         
    43       111  
Impairment of financial assets                                                                                                         
    (2,088 )     (519 )
Present value accounting – tax credits                                                                                                         
    10,943       5,803  
Investments in associates                                                                                                         
    (6,454 )     (11,609 )
Investments in joint ventures                                                                                                         
    -       28  
Acquisition of non-controlling interest                                                                                                         
    -       (14,773 )
Deferred income tax                                                                                                         
    (107 )     (8,565 )
Non-controlling interest on adjustment above                                                                                                         
    691       (220 )
Subtotal shareholders’ equity under IFRS attributable to Alto Palermo S.A.
    795,918       823,876  
Non-controlling interest                                                                                                         
    136,836       148,647  
Total shareholders’ equity under IFRS                                                                                                         
    932,754       972,523  

 
 
   
June 30, 2012 (1)
 
Net comprehensive income under Argentine GAAP attributable to Alto Palermo S.A.
    327,842  
Revenue recognition – “scheduled rent increases”                                                                                                         
    27,317  
Revenue recognition – “letting fees”                                                                                                         
    (8,999 )
Trading properties                                                                                                         
    9,661  
Pre-operating and organization expenses                                                                                                         
    1,058  
Goodwill                                                                                                         
    (2,034 )
Non-current investments – financial assets                                                                                                         
    (6,165 )
Initial direct costs on operating leases                                                                                                         
    119  
Tenant deposits                                                                                                         
    68  
Impairment of financial assets                                                                                                         
    1,569  
Present value accounting – tax credits                                                                                                         
    (5,140 )
Investments in associates                                                                                                         
    (5,155 )
Investments in joint ventures                                                                                                         
    28  
Deferred income tax                                                                                                         
    (8,458 )
Non- controlling interest on adjustment above                                                                                                         
    336  
Net comprehensive income under IFRS attributable to Alto Palermo S.A.
    332,047  
Non-controlling interest                                                                                                         
    13,597  
Total net comprehensive income under IFRS Alto Palermo S.A.
    345,644  
 
(1)  
In thousands of Pesos.
 
Note 3 to our audited consolidated financial statements included in Item 18 of this annual report on Form 20F contains a thorough description of the application of the optional exemptions and mandatory exceptions under IFRS 1 together with the required reconciliations of Argentine GAAP to IFRS and a detailed explanation of the adjustments.


Market data used throughout this annual report was derived from reports prepared by unaffiliated third-party sources. Such reports generally state that the information contained therein has been obtained from sources believed by such sources to be reliable.

 Certain amounts which appear in this annual report (including percentage amounts) may not sum due to rounding.

In this annual report where we refer to “Peso”,“Pesos”, “ARS” or “Ps.” we mean Argentine pesos, the lawful currency in Argentina; when we refer to “U.S. Dollars,” or “US$” we mean United States dollars, the lawful currency of the United States of America; and when we refer to “Central Bank” we mean the Argentine Central Bank.

Solely for the convenience of the reader, we have translated certain Peso amounts into U.S. Dollars at the offer exchange rate quoted by Banco de la Nación Argentina for June 30, 2013, which was Ps. 5.388 = US$ 1.00. We make no representation that the Peso or U.S. Dollar amounts actually represent or could have been or could be converted into U.S. Dollars at the rates indicated, at any particular rate or at all.

 
 
 
This item is not applicable.
 
 
This item is not applicable.
 
 
 
The following selected consolidated financial data has been derived from our audited consolidated financial statements as of the dates and for each of the periods indicated below. This information should also be read in conjunction with our audited consolidated financial statements and the discussion in Item 5 "Operating and Financial Review and Prospects" included elsewhere in this annual report. The selected consolidated statement of income data for the years ended June 30, 2013 and 2012 and the selected consolidated balance sheet data as of June 30, 2013, 2012 and as of July 1, 2011 have been derived from our consolidated financial statements included in this annual report which have been audited by Price Waterhouse & Co., Ciudad Autónoma de Buenos Aires, Argentina, member firm of PricewaterhouseCoopers an independent registered public accounting firm.
 
   
For the fiscal years ended June 30,
 
   
2013
    2013    
2012
 
   
US$ (2)
   
Ps. (1)
   
Ps. (1)
 
Audited Consolidated Statement of Income                  
Revenues
    303,900       1,637,411       1,367,437  
Costs
    (139,173 )     (749,865 )     (619,278 )
Gross profit
    164,726       887,546       748,159  
                         
Gain from disposal of investment properties
    44       236       -  
General and administrative expenses
    (12,569 )     (67,720 )     (58,183 )
Selling expenses
    (11,289 )     (60,826 )     (43,376 )
Other operating results, net
    (6,974 )     (37,578 )     (20,816 )
Total operating income
    133,938       721,658       625,784  
                         
Share of (loss) /profit of associates and joint ventures
    (112 )     (602 )     3,758  
Profit from operations before financing and taxation
    133,826       721,056       629,542  
                         
Financial income
    10,213       55,029       49,561  
Finance cost
    (45,886 )     (247,233 )     (157,411 )
Other financial
    163       877       3,368  
Financial results, net
    (35,510 )     (191,327 )     (104,482 )
Income before tax
    98,316       529,729       525,060  
Income tax, expense
    (33,166 )     (178,698 )     (179,416 )
Total net income
    65,151       351,031       345,644  
Total comprehensive income
    65,151       351,031       345,644  
                         
Attributable to:
                       
Equity holders of the parent
    61,265       330,098       332,047  
Non-controlling interest
    3,885       20,933       13,597  
Profit per share attributable to equity holders of the parent:
                       
Basic
    0.05       0.26       0.26  
Diluted
    0.05       0.26       0.14  
                         
CASH FLOW DATA
                       
Net cash generated from operating activities
    121,512       654,706       613,905  
Net cash used in investing activities
    (82,993 )     (447,164 )     (259,529 )
Net cash used in financing activities
    (16,850 )     (90,789 )     (400,192 )
Net increase / (decrease) in cash and cash equivalents
    21,669       116,753       (45,816 )
 
   
As of the year ended June 30,
   
As of July 1,
 
   
2013
   
2013
   
2012
   
2011
 
   
US$ (2)
   
Ps. (1)
   
Ps. (1)
   
Ps. (1)
 
Audited Consolidated Statements of Financial Position
                       
ASSETS
                       
Non-Current Assets
                       
Investment properties
    302,691       1,630,900       1,553,794       1,554,913  
Property, plant and equipment
    3,743       20,169       17,485       17,402  
Trading properties
    5,867       31,612       35,334       32,777  
Intangible assets
    4,164       22,438       22,501       22,745  
Investment in associates and joint ventures
    31,759       171,117       114,455       47,634  
Deferred income tax assets
    6,942       37,404       23,467       22,790  
Income tax receivables
    943       5,083       4,002       4,778  
Trade and other receivables
    14,089       75,910       78,886       78,982  
Investments in financial assets
    18,553       99,963       104,993       76,256  
Total non-current assets
    388,752       2,094,596       1,954,917       1,858,277  
                                 
Current Assets
                               
Trading properties
    1,298       6,991       4,012       14,224  
Inventories
    1,837       9,896       10,394       7,384  
Trade and other receivables
    102,220       550,762       386,773       324,522  
Investments in financial assets
    31,398       169,174       45,072       29,396  
Cash and cash equivalents
    41,460       223,385       102,698       145,552  
Total current assets
    178,212       960,208       548,949       521,078  
                                 
TOTAL ASSETS
    566,964       3,054,804       2,503,866       2,379,355  
                                 
Shareholders´ equity attributable to Alto Palermo S.A.
    157,558       848,923       823,876       795,918  
Non-controlling interest
    30,047       161,892       148,647       136,836  
Shareholders´ equity
    187,605       1,010,815       972,523       932,754  
LIABILITIES
                               
Non-current liabilities
                               
Trade and other payables
    35,295       190,170       160,208       143,934  
Borrowings
    154,939       834,814       680,550       615,503  
Deferred income tax liabilities
    18,920       101,942       120,968       137,684  
Provisions
    2,177       11,730       11,593       12,829  
Total non-current liabilities
    211,332       1,138,656       973,319       909,950  
                                 
Current liabilities
                               
Trade and other payables
    81,245       437,750       361,880       324,545  
Income tax liabilities
    14,418       77,683       105,411       66,163  
Payroll and social security liabilities
    4,833       26,041       26,171       24,061  
Derivative financial instruments
    321       1,732       -       -  
Borrowings
    66,078       356,028       64,562       121,615  
Provisions
    1,132       6,099       -       267  
Total current liabilities
    168,028       905,333       558,024       536,651  
                                 
TOTAL LIABILITIES
    379,360       2,043,989       1,531,343       1,446,601  
                                 
TOTAL SHAREHOLDERS' EQUITY AND LIABILITIES
    566,965       3,054,804       2,503,866       2,379,355  

 
 
 
   
IFRS For the fiscal years ended on June, 30
 
   
2013
   
2013
   
2012
 
   
US$ (2)
   
Ps. (1)
   
Ps. (1)
 
OTHER FINANCIAL DATA                  
Basic net income per common share
    0.048       0.26       0.26  
Diluted net income per common share
    0.048       0.26       0.14  
Basic net income per ADS
    1.930       10.40       10.40  
Diluted net income per ADS
    1.930       10.40       5.60  
Weighted – average number of common shares outstanding
    126,014       126,014       126,014  
Depreciation and amortization
    24,092       129,806       108,849  
Capital expenditures
    41,371       222,907       116,411  
Working capital
    10,184       54,875       (9,075 )
Ratio of current assets to current liabilities
    0.20       1.06       0.98  
Ratio of shareholders’ equity to total liabilities
    0.09       0.49       0.64  
Ratio of non-current assets to total assets
    0.13       0.69       0.78  
Dividends per share
    0.045       0.24       0.23  
Dividends per ADS
    1.806       9.73       9.34  
Number of shares outstanding
    1,260,140       1,260,140       1,259,886  
Share Capital     23,388       126,014       125,989  
 
(1)
In thousands of Pesos, except ratios. Totals may not sum due to rounding.
(2)
In thousands of U.S. Dollars. Solely for the convenience of the reader we have translated Peso amounts into U.S. Dollars at the exchange rate quoted by Banco de la Nación Argentina as of June 30, 2013, which was Ps. 5.388 per US$ 1.0. We make no representation that the Argentine Peso or U.S. Dollar amounts actually represent, could have been or could be converted into U.S. Dollars at the rates indicated, at any particular rate or at all. See “Exchange Rates”. Totals may not sum due to rounding.

 Exchange Rates

In April 1991, Argentine law established a fixed exchange rate according to which the Central Bank was statutorily obligated to sell U.S. Dollars to any individual at a fixed exchange rate of Ps. 1.00 per US$ 1.00. On January 7, 2002, the Argentine congress enacted Law No. 25.561 (the “Public Emergency Law”), abandoning over ten years of fixed Peso-U.S. Dollar parity at Ps. 1.00 per US$ 1.00. After devaluing the Peso and setting the official exchange rate at Ps. 1.40 per US$ 1.00, on February 11, 2002, the government allowed the Peso to float. The shortage of U.S. Dollars and their heightened demand caused the Peso to further devalue significantly in the first half of 2002. As of October 24, 2013 the exchange rate was Ps. 5.8700 = US$1.00 as quoted by Banco de la Nación Argentina at the U.S. Dollar selling rate. During the calendar year 20010, year 2011, year 2012 and the first semester of year 2013, the Central Bank has indirectly affected the exchange rate market, through active participation with the purpose of isolating external effects and maintaining a stable parity.

The following table presents the high, low, average and period closing exchange rate for the average ask / bid of U.S. Dollars stated in nominal Pesos per U.S. Dollar.
 
   
Exchange Rate
 
   
High(1)
   
Low (2)
   
Average (3)
   
Period Closing(4)
 
Fiscal year ended June 30, 2009
    3.7780       2.9940       3.3862       3.7770  
Fiscal year ended June 30, 2010
    3.9130       3.6360       3.8255       3.9110  
Fiscal year ended June 30, 2011
    4.0900       3.9110       3.9810       4.0900  
Fiscal year ended June 30, 2012
    4.5070       4.0900       4.2808       4.5070  
Fiscal year ended June 30, 2013
    5.3680       4.5050       4.8914       5.3680  
July, 2013
    5.4850       5.3700       5.4218       5.4850  
August, 2013
    5.6520       5.4910       5.5625       5.6520  
September, 2013
    5.7730       5.6660       5.7173       5.7730  
As of October 24, 2013      5.8500        5.8700        5.8152       5.8500  
 
 
(1)
The high exchange rate stated was the highest closing exchange rate of the month during the fiscal year.
 
(2)
The low exchange rate stated was the lowest closing exchange rate of the month during the fiscal year.
 
(3)
Average exchange rate for the fiscal year, month or partial period described in the table above.
 
(4)
Average of the selling rate and buying rate.
 
 
Source: Banco de la Nación Argentina
 
 
 
Fluctuations in the Peso-dollar exchange rate may affect the equivalent in dollars of the price in Pesos of our shares on the Buenos Aires Stock Exchange. Increases in Argentine inflation or devaluation of the Argentine currency could have a material adverse effect on our operating results.

 
This section is not applicable.
 
 
This section is not applicable.
 

You should carefully consider the risks described below, in addition to the other information contained in this annual report, before making an investment decision. We also may face additional risks and uncertainties that are not presently known to us, or that we currently deem immaterial, which may impair our business. In general, you take more risk when you invest in the securities of issuers in emerging markets such as Argentina than when you invest in the securities of issuers in the United States. You should understand that an investment in our common shares and ADSs involves a high degree of risk, including the possibility of loss of your entire investment.

Risks Relating to Argentina

Argentina’s growth may not be sustainable.

The Argentine economy has experienced significant volatility in recent decades, characterized by periods of low or negative growth, high inflation and currency devaluation. During 2001 and 2002, Argentina experienced a period of severe political, economic and social crisis, which caused a significant economic contraction and led to radical changes in government policies. Although the economy has recovered significantly since then, uncertainty remains as to whether the recent growth is sustainable, since it has depended, to a significant extent, on favorable exchange rates, high commodity prices and excess production capacity. The recovery, however, has resulted in inflation and has intensified the country’s need for capital investment, with many sectors, particularly the energy sector, operating near full capacity. Additionally, the global financial crisis and economic downturn of 2008 has had a significant adverse impact on the country’s performance and could remain a factor in the foreseeable future.

In 2012, the Argentine GDP increased by 2.1%, according to data published by the National Institute of Statistics (“Instituto Nacional de Estadísticas y Censos” or the “INDEC”). For the six months ended June 30, 2013, GDP increased 7.3% relative to the same period the prior year, according to data published by the INDEC. As of June 30, 2013, the Monthly Economic Activity Estimator (“Estimador Mensual de Actividad Económica” or the “EMAE”) increased 5.7%, relative to the same period the prior year, according to data published by the INDEC.

The economic and financial slowdown in certain European countries, the United States, and certain other important commercial partners of Argentina, may imply a decline in the international demand for Argentine products, which could have a material adverse effect on our financial condition and the results of operations. Moreover, the country’s relative stability since 2002 has been affected by increased political tension and government intervention in the economy.

Our business depends to a significant extent on macroeconomic and political conditions in Argentina. We cannot assure you that Argentina’s recent growth will continue. Deterioration of the country’s economy would likely have a significant adverse effect on our business, financial condition and results of operations.

Continuing inflation may have an adverse effect on the economy.
 
The devaluation of the Peso since January 2002 has created pressures on the domestic price system that generated high inflation throughout 2002, before inflation substantially stabilized in 2003. In fiscal years 2009, 2010, 2011, 2012 and 2013, inflation according to the INDEC was 8.5%, 11.0%, 9.7%, 9.9% and 10.5%, respectively, in part due to actions implemented by the Argentine government to control inflation, including limitations on exports and price arrangements agreed upon with private companies. The uncertainty surrounding future inflation may impact the country’s growth.
 
In the past, inflation has undermined the Argentine economy and the government’s ability to create conditions conducive to growth. A return to a high inflation environment would adversely affect the availability of long-term credit and the real estate market and may also affect Argentina’s foreign competitiveness by diluting the effects of the Peso devaluation and negatively impacting the level of economic activity and employment.
 
Additionally, high inflation would also undermine Argentina’s foreign competitiveness and adversely affect economic activity, employment, real salaries, consumption and interest rates. In addition, the dilution of the positive effects of the Peso devaluation on the export-oriented sectors of the Argentine economy will decrease the level of economic activity in the country. In turn, a portion of the Argentine debt is adjusted by the Coefciente de Estabilización de Referencia, (“CER Index”, per its acronym in Spanish), a currency index that is strongly tied to inflation. Therefore, any significant increase in inflation would cause an increase in Argentina’s debt and, consequently, the country`s financial obligation.
 
If inflation remains high or continues to rise, Argentina’s economy may be negatively impacted and our business could be adversely affected.
 
There are concerns about the accuracy of Argentina’s official inflation statistics.
 
In January 2007, the INDEC modified its methodology used to calculate the consumer price index, which is calculated as the monthly average of a weighted basket of consumer goods and services that reflects the pattern of consumption of Argentine households. Several economists, as well as the international and Argentine press, have suggested that this change in methodology was related to the policy of the Argentine government intended to curb the increase of inflation and consequently reduce payments on the outstanding inflation-linked bonds issued by Argentina. At the time that the INDEC adopted this change in methodology the Argentine government also replaced several key officers at the INDEC, prompting complaints of governmental interference from the technical staff at the INDEC. In addition, the International Monetary Fund (“IMF”) requested to clarify its inflation rates several times.
 
In June 2008, the INDEC published a new consumer price index which eliminated nearly half of the items included in previous surveys and introduced adjustable weightings for several items as fruits, vegetables and clothing, which have seasonal cost variations. The INDEC has indicated that it based its evaluation of spending habits on a national household consumption survey from 2004 to 2005, in addition to other sources.
 
The aforementioned 2008 consumer price index has been criticized by economists and investors after its debut report found prices rising well below expectations. These events have negatively affected the credibility of the consumer price index published by the INDEC, as well as other indexes published by the INDEC which require the consumer price index for their own calculation, including the poverty index, the unemployment index and real gross domestic product index. Argentina’s inflation rate may be differ significantly higher than the rates indicated by official reports.
 
In December 2010, the Argentine government agreed to meet with an official IMF team which arrived in Argentina to assist the INDEC with the development of a new national price index. In April 2011, the IMF team completed the second technical mission to assist on the design and methodology of a new national price index. As of the date of this annual report, the Argentine government has informed the IMF that a new nationwide consumer price index would be published in the foreseeable future, stating that the figures from the new consumer price index may differ with the consumer price now emplaces; in that sense, all Argentine provinces have already signed an agreement to enter into the aformentioned new consumer price index, which will be submitted to the IMF during November 2013.
 
Any required correction or restatement of the INDEC indexes could result in a significant further decrease in confidence in the Argentine economy, which could , in turn, have an adverse effect on our ability to access international capital markets to finance our operations and growth, which could, in turn, adversely affect our results of operations and financial conditions and cause  the market value of our ADSs to decline.
 
Argentina’s ability to obtain financing from international markets is limited, which may impair its ability to implement reforms and foster economic growth.
 
In 2005, Argentina restructured part of its sovereign debt that had been in default since the end of 2001. As a result of the restructuring the Argentine government announced that it had approximately US$ 129.2 billion in total gross public debt as of December 31, 2005. Certain bondholders that did not participate in that restructuring, mainly from the United States, Italy and Germany, filed legal actions against Argentina to collect on the defaulted bonds. Many of these proceedings are still pending as of this date and holdout creditors may initiate new suits in the future.
 
In September 2008, Argentina announced its intention to cancel its external public debt to Paris Club creditor nations using reserves of the Central Bank in an amount equal to approximately US$ 6.5 billion. However, as of the date of this Annual Report, the National Government has not yet cancelled such debt. If no agreement with the Paris Club creditor nations is reached, financing from multilateral financial institutions may be limited or not available.
 
In addition, foreign shareholders of several Argentine companies have filed claims before the International Center for the Settlement of Investment Disputes (“ICSID”) alleging that certain government measures adopted during the country’s 2001 crisis were inconsistent with the fair and equitable treatment standards set forth in various bilateral investment treaties to which Argentina is a party. Since May 2005, the ICSID tribunals have issued several awards against Argentina. Only the cases “CMS v. Argentina”, “Azurix v. Argentina” and “Vivendi v. Argentina” are currently final. This decisions required the Argentine government to pay US$ 133.2 million, US$ 165.2 million and US$ 105 million, respectively. During the month of October 2013, the Argentinean Government has announced that has arrived to an agreement to settle the aforementioned claims against Argentina, in a settlement agreement which establishes  a 25% nominal haircut, and the investment in newly sovereign bonds of Argentina to be issued, among other conditions.
 
In April 30, 2010, Argentina launched a new debt exchange to holders of the securities issued in the 2005 debt exchange and to holders of the securities that were eligible to participate in the 2005 debt exchange (other than brady bonds) to exchange such debt for new securities and, in certain cases, a cash payment. As a result of the 2005 and 2010 exchange offers, Argentina restructured over 91% of the defaulted debt eligible for the 2005 and 2010 exchange offers. The creditors who did not participate in the 2005 or 2010 exchange offers may continue their pursuit of a legal action against Argentina for the recovery of debt, which could adversely affect Argentina’s access to the international capital markets.
 
Argentina’s past default and its failure to restructure completely its remaining sovereign debt and fully negotiate with the holdout creditors may limit Argentina’s ability to reenter the international capital markets. Litigation initiated by holdout creditors as well as ICSID claims have resulted and may continue to result in judgments and awards against the Argentine government which, if not paid, could prevent Argentina from obtaining credit from multilateral organizations. Judgment creditors have sought and may continue to seek to attach or enjoin assets of Argentina. In addition, various creditors have organized themselves into associations to engage in lobbying and public relations concerning Argentina’s default on its public indebtedness. Such groups have over the years unsuccessfully urged passage of federal and New York state legislation directed at Argentina’s defaulted debt and aimed at limiting Argentina’s access to the U.S. capital markets. Although neither the United States Congress nor the New York state legislature has taken any significant steps towards adopting such legislation, we can make no assurance that the enactment of a new legislation or other political actions designed to limit Argentina’s access to capital markets will not take effect.
 

 
Furthermore, in April 2010, a Court of New York granted an attachment over reserves of the Argentine Central Bank in the United States requested by creditors of Argentina on the theory that the Central Bank was its alter ego.  On July 2011, an appeals court reversed that ruling, stating that the assets of the Central Bank were protected by law.  Plaintiffs have petitioned the United States Supreme Court to review the appeals court decision and, as of the date of this annual report, the United States Supreme Court has turned down a petition by Argentina to reconsider a lower-court order requiring it to pay creditors upwards of $1.4 billion. In August, the U.S. 2nd Circuit Court of Appeals in New York ruled against Argentina in a separate issue in the same dispute. At the time, however, it put a stay on any action until the Supreme Court decided whether to hear the nation’s previously submitted petition; meanwhile, Argentina has appealed the August circuit-court ruling, and if that is rejected, the country could file a separate request to the Supreme Court.
 
As a result of Argentina’s default and the events that have followed it, the Argentine government may not have the financial resources necessary to implement reforms and foster economic growth, which, in turn, could have a material adverse effect on the country’s economy and, consequently, our businesses and results of operations.  Furthermore, Argentina’s inability to obtain credit in international markets could have a direct impact on our own ability to access international credit markets to finance our operations and growth, which could adversely affect our results of operations and financial condition.

Significant fluctuation in the value of the Peso may adversely affect the Argentine economy as well as our financial performance.
 
The devaluation of the Peso has had a negative impact on the ability of Argentine businesses to honor their foreign currency-denominated debt, initially led to very high inflation, significantly reduced real wages, had a negative impact on businesses whose success is dependent on domestic market demand, such as utilities and the financial industry, and adversely affected the government’s ability to honor its foreign debt obligations. If the Peso devalues significantly, all of the negative effects on the Argentine economy related to such devaluation could recur, with adverse consequences on our business. Moreover, it would likely result in a decline in the value of our common shares and the ADSs as measured in U.S. Dollars.

On the other hand, a substantial increase in the value of the Peso against the U.S. Dollar also presents risks for the Argentine economy. The appreciation of the Peso against the U.S. Dollar negatively impacts the financial condition of entities whose foreign currency denominated assets exceed their foreign currency-denominated liabilities, such as us. In addition, in the short term, a significant real appreciation of the Peso would adversely affect exports. This could have a negative effect on GDP growth and employment as well as reduce the Argentine public sector’s revenues by reducing tax collection in real terms, given its current heavy reliance on taxes on exports. The appreciation of the Peso against the U.S. Dollar could have an adverse effect on the Argentine economy and our business.
 
Certain measures that may be taken by the Argentine Government may adversely affect the Argentine economy and, as a result, our business and results of operations
 
In November 2008, the Argentine Government enacted Law No. 26,425 which provided for the nationalization of the Administradoras de Fondos de Jubilaciones y Pensiones (the “AFJPs”) (See “The nationalization of Argentina’s pension funds has materially and adversely affected local capital markets”). More recently, the Argentine Government, has promoted a model of increase state participation in the economy through welfare programs, exchange and price control and the promotion of state owned companies. We cannot assure you that these or other measures that may be adopted by the Argentine Government, such as expropriation, nationalization, forced renegotiation or modification of existing contracts, new taxation policies, changes in laws, regulations and policies affecting foreign trade, investment, among others, will not have a material adverse effect on the Argentine economy and, as a consequence, adversely affect our financial condition, our results of operations and the market value of our shares and ADSs.
 
The Argentine government may order salary increases to be paid to employees in the private sector, which would increase our operating costs.

In the past, the Argentine government has passed laws, regulations and decrees requiring companies in the private sector to maintain minimum wage levels and provide specified benefits to employees and may do so again in the future. In the aftermath of the Argentine economic crisis, employers both in the public and private sectors have experienced significant pressure from their employees and labor organizations to increase wages and to provide additional employee benefits. Due to the high levels of inflation, the employees and labor organizations have begun again demanding significant wage increases. It is possible that the Argentine government could adopt measures mandating salary increases and/or the provision of additional employee benefits in the future. Any such measures could have a material and adverse effect on our business, results of operations and financial condition.

The nationalization of Argentina’s pension funds has materially and adversely affected local capital markets.

Under Law No. 26,425, which was published in the Official Gazette in December 2008, the Argentine government transferred approximately Ps. 94.4 billion (US$ 29.3 billion) in assets held by the country’s private Administradoras de Fondos de Jubilaciones y Pensiones (pension funds, or “AFJPs” per it´s Spanish acronym) to the social security agency (“ANSES”) managed by the National State.

Law No. 26,425 was supplemented, among others, by Decree No. 2103/2008 which describes the composition of the fund (“Fondo de Garantia de Sustentabilidad”) managed by ANSES and the directions for the management thereof; in turn, Decree No. 2104/08 regulates the matters concerning the transfer to the Argentine government of the contributions and all the documentation of the members of the former AFJP´s regime retroactive as of December 1, 2008.

AFJPs were the largest participants in the country’s local capital markets, leading the group of institutional investors. With the nationalization of their assets, the dynamics of the local capital markets changed due to a decrease in their number, becoming a concentrated group. In addition, the government became a significant shareholder in many of the country’s publicly-held companies. Pursuant to current regulations, ANSES may exercise the voting rights corresponding to its respective shares, which could eventually result in uncertain consequences. The nationalization of the AFJP has adversely affected investors’ confidence in Argentina, which may impact our ability to undertake access to the capital market in the future.

Exchange controls and restrictions on transfers abroad and capital inflow restrictions have limited, and can be expected to continue to limit, the availability of international credit.

In 2001 and 2002, Argentina imposed exchange controls and transfer restrictions substantially limiting the ability of companies to retain foreign currency or make payments abroad. On June 2005, the government issued decree No. 616/2005, which established additional controls on capital inflow, including the requirement that, subject to limited exemptions, 30% of all funds remitted to Argentina remain deposited in a domestic financial institution for one year without earning any interest. On October 2011, new exchange controls measures that restrict foreign exchange inflows and outflows of capital have been implemented, among them it was established as a requirement for the repatriation of the direct investment of the non-resident (purchase of shares of local companies and real estate), the demonstration of the income of the currency and its settlement in the single free exchange market “Mercado Único y Libre de Cambios”. This measure increases the cost of obtaining foreign funds and limits access to such financing.
 
The Argentine government may, in the future, impose additional controls on the foreign exchange market and on capital flows from and into Argentina, in response to capital flight or depreciation of the Peso. These restrictions may have a negative effect on the economy and on our business if imposed in an economic environment where access to local capital is constrained. For more information, please see Item 10 (d) “Exchange Controls”.
 
Payment of dividends to non-residents has been limited in the past and may be limited again.
 
Beginning in February 2002, the payment of dividends, irrespective of amount, outside Argentina required prior authorization from the Central Bank. On January 7, 2003, the Central Bank issued communication “A” 3859, which is still in force and pursuant to which there are no limitations on companies’ ability to purchase foreign currency and transfer it outside Argentina to pay dividends, provided that those dividends arise from net earnings corresponding to approved and audited financial statements. If similar restrictions are enacted by the Argentine government or the Central Bank in the future, it could have an adverse effect on our business. Even though, no legal restrictions are currently in effect in connection with the payment of dividends abroad, there have been delays in accessing the “Mercado Único y Libre de Cambios” in order to purchase foreign currency under this concept.

Property values in Argentina could decline significantly.

Property values are influenced by multiple factors that are beyond our control. We cannot assure you that property values will increase. Many of the properties we own are located in Argentina. As a result, a reduction in the value of properties in Argentina could materially affect our business.
 
The stability of the Argentine banking system is uncertain.
 
During 2001 and the first half of 2002, a significant amount of deposits were withdrawn from Argentine financial institutions largely due to the loss of confidence of depositors in the Argentine government’s ability to repay its debts, including its debts within the financial system, and to maintain Peso-Dollar parity in the context of its solvency crisis.
 
While the condition of the financial system has improved, adverse economic developments, even if not related to or attributable to the financial system, could result in deposits flowing out of the banks and into the foreign exchange market, as depositors seek to shield their financial assets from a new crisis. Any run on deposits could create liquidity or even solvency problems for financial institutions, resulting in a contraction of available credit.
 
In the event of a future shock, such as the failure of one or more banks or a crisis in depositor confidence, the Argentine government could impose further exchange controls or transfer restrictions and take other measures that could lead to renewed political and social tensions and undermine the Argentine government’s public finances, which could adversely affect Argentina’s economy and prospects for economic growth which could adversely affect our business.
 
The Argentine economy could be adversely affected by economic developments in other global markets.
 
Financial and securities markets in Argentina are influenced, to varying degrees, by economic and market conditions in other global markets. Although economic conditions vary from country to country, investors’ perception of the events occurring in one country may substantially affect capital flows into other countries, including. Lower capital inflows and declining securities prices negatively affect the real economy of a country through higher interest rates or currency volatility. The Argentine economy remains vulnerable to external shocks, including those related or similar to the global economic crisis that began in 2008 and the recent uncertainties surrounding European sovereign debt. For example, the recent challenges faced by the European Union to stabilize certain of its member economies, such as Greece, Ireland, Italy, Portugal and Spain, have had international implications affecting the stability of global financial markets, which has hindered economies worldwide. Should measures taken by the European Union be insufficient to restore confidence and stability to the financial markets, any recovery of the global economy, including the U.S. and European Union economies, could be hindered or reversed, which could negatively affect the Argentine economy, and in turn our business and results of operations.
 
In addition, Argentina is also affected by the economic conditions of major trade partners, such as Brazil and/or countries that have influence over world economic cycles, such as the United States and China. If developing countries, such as Brazil and China, which are also Argentina’s trade partners, fall into a recession the Argentine economy would be affected by a decrease in exports. All of these factors would have a negative impact on us, our business, operations, financial condition and prospects.
 
 
If prices for Argentina’s main commodity exports decline, such decline could have an adverse effect on Argentina’s economic growth and on our business.

Argentina’s economy has historically relied on the export of commodities, the prices of which have been volatile in the past and largely outside its control. High commodity prices have contributed significantly to government revenues from taxes on exports. Fluctuations in prices for commodities exported by Argentina and a significant increase in the value of the Peso (in real terms) may reduce Argentina’s competitiveness and significantly affect the country’s exports. A decrease in exports could affect Argentina’s economy, have a material adverse effect on public finances due to a loss of tax revenues, cause an imbalance in the country’s exchange market which, in turn, could lead to increased volatility with respect to the exchange rate. In addition, and more importantly in the short term, a significant appreciation of the Peso could materially reduce the Argentine government’s revenues in real terms and affect its ability to make payments on its debt obligations, as these revenues are heavily derived from export taxes (withholdings). This could worsen the financial condition of the Argentine public sector, which could adversely affect the Argentine economy, as well as our financial condition and operating results.
 
Restrictions on the supply of energy could negatively affect Argentina’s economy.
 
As a result of prolonged recession, and the forced conversion into Pesos and subsequent freeze of gas and electricity tariffs in Argentina, there has been a lack of investment in gas and electricity supply and transport capacity in Argentina in recent years. At the same time, demand for natural gas and electricity has increased substantially, driven by a recovery in economic conditions and price constraints, which has prompted the government to adopt a series of measures that have resulted in industry shortages and/or costs increase.
 
The federal government has been taking a number of measures to alleviate the short-term impact of energy shortages on residential and industrial users. If these measures prove to be insufficient, or if the investment that is required to increase natural gas production and transportation capacity and energy generation and transportation capacity over the medium-and long-term fails to materialize on a timely basis, economic activity in Argentina could be curtailed which may have a significant adverse effect on our business.

As a first step of these measures, subsidies on energy tariffs are being withdrawn to industries and high income consumers. As a result, our operating costs may increase.
 
Risks Relating to Our Business
 
We are subject to risks inherent to the operation of shopping centers that may affect our profitability.
 
 Shopping centers are subject to various factors that affect their development, administration and profitability. These factors include:
 
•    decline in our lease prices or increases in levels of default by our tenants due to recessions, increases in interest rates and other factors that we cannot control;
 
•    the accessibility and the attractiveness of the area where the shopping center is located;
 
•    the intrinsic attractiveness of the shopping center;
 
•    the flow of people and the level of sales of each shopping center rental unit;
 
•    increasing competition from internet sales;
 
•    the amount of rent collected from each shopping center rental unit;
 
•    changes in consumer demand and availability of consumer credit, both of which are highly sensitive to general macroeconomic conditions; and
 
•    the fluctuations in occupancy levels in the shopping centers.
 
An increase in our operating costs, caused by inflation or by other factors, could have a material adverse effect on us if our tenants are unable to pay higher rent due to the increase in expenses. Moreover, the shopping center business is closely related to consumer spending and to the economy in which customers are located. All of our shopping centers are in Argentina, and, as a consequence, their business could be seriously affected by a recession in Argentina. For example, during the economic crisis in Argentina, spending decreased significantly, unemployment, political instability and inflation significantly reduced consumer spending in Argentina, lowering tenants’ sales and forcing some tenants to leave our shopping centers. If the international financial crisis has a substantial impact on economic activity in Argentina, it will likely have a material adverse effect on the revenues from the shopping center activity and thus on our business.
 
Our performance is subject to risks associated with our properties and with the real estate industry.
 
Our economic performance and the value of our real estate assets are subject to the risk that our properties may not be able to generate sufficient revenues to meet our operating expenses, including debt service and capital expenditures, our cash flow and ability to service our debt and to cover other expenses may be adversely affected.
 
Events or conditions beyond our control that may adversely affect our operations or the value of our properties include:
 
•    downturns in the national, regional and local economic climate;
 
•    volatility and decline in discretionary spending;
 
•    competition from other shopping centers;
 
•    local real estate market conditions, such as oversupply or reduction in demand for retail space;
 
•    decreases in consumption levels;
 
•    changes in interest rates and availability of financing;
 
•    the exercise by our tenants of their legal right to early termination of their leases;
 
•    vacancies, changes in market rental rates and the need to periodically repair, renovate and re-lease space;
 
•    increased operating costs, including insurance expense, salary increases, utilities, real estate taxes, state and local taxes and heightened security costs;
 
•    civil disturbances, earthquakes and other natural disasters, or terrorist acts or acts of war which may result in uninsured or underinsured losses;
 
•    significant expenditures associated with each investment, such as debt service payments, real estate taxes, insurance and maintenance costs which are generally not reduced when circumstances cause a reduction in revenues from a property;
 
•    declines in the financial condition of our tenants and our ability to collect rents from our tenants;
 
•    changes in our ability or our tenants’ ability to provide for adequate maintenance and insurance, possibly decreasing the useful life of and revenue from property; and
 
•    changes in law or governmental regulations (such as those governing usage, zoning and real property taxes) or government action such as expropriation or confiscation.
 
Even though some of the abovementioned events have occurred, our results have not been significantly affected. If any one or more of the foregoing conditions were to affect our business, it could have a material adverse effect on our financial condition and results of operations.
 
An adverse economic environment for real estate companies and the credit crisis may adversely impact our results of operations and business prospects significantly.
 
The success of our business and profitability of our operations are dependent on continued investment in the real estate markets and access to capital and debt financing. A long term crisis of confidence in real estate investments and lack of credit for acquisitions may tend to constrain our business growth. As part of our business goals, we intend to increase our properties portfolio with strategic acquisitions of core properties at advantageous prices, and core plus and value added properties where we believe we can bring necessary expertise to enhance property values. In order to pursue acquisitions, we may need access to equity capital and/or debt financing. Recent disruptions in the financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact our ability to refinance existing debt and the availability and cost of credit in the near future. Any consideration of sales of existing properties or portfolio interests may be tempered by decreasing property values. Our ability to make scheduled payments or to refinance our obligations with respect to indebtedness depends on our operating and financial performance, which in turn is subject to prevailing economic conditions. If a recurrence of the disruptions in financial markets remain in the future, there can be no assurances that government responses to such disruptions will restore investor confidence, stabilize the markets or increase liquidity and the availability of credit.
 
The loss of significant tenants could adversely affect both the operating revenues and value of our properties.
 
If certain of our most important tenants were to experience financial difficulties, including bankruptcy, insolvency or a general downturn of business, or if we simply failed to retain their patronage, our business could be adversely affected. Our shopping centers are typically anchored by significant tenants, such as well-known department stores who generate shopping traffic at the mall. A decision by such significant tenants to cease operations at our shopping centers could have a material adverse effect on the revenues and profitability of the affected segment and, by extension, on our financial condition and results of our operations. The closing of one or more significant tenants may induce other major tenants at an affected property to terminate their leases, to seek rent relief and/or cease operating their stores or otherwise adversely affect occupancy at the property. In addition, key tenants at one or more properties might terminate their leases as a result of mergers, acquisitions, consolidations, dispositions or bankruptcies in the retail industry. The bankruptcy and/or closure of one or more significant tenants, if we are not able to successfully re-lease the affected space, could have a material adverse effect on both the operating revenues and underlying value of the properties involved.
 
Our future acquisitions may be unprofitable.
 
We intend to acquire additional shopping center properties to the extent that they will be acquired on advantageous terms and conditions, and meet our investment criteria. Acquisitions of commercial properties entail general investment risks associated with any real estate investment, including:
 
•    our estimates of the cost of improvements needed to bring the property up to established standards for the market may prove to be inaccurate;
 
•    properties we acquire may fail to achieve within the time frames we project the occupancy or rental rates we project at the time we make the decision to acquire, which may result in the properties’ failure to achieve the returns we projected;
 
•    our pre-acquisition evaluation of the physical condition of each new investment may not detect certain defects or identify necessary repairs, which could significantly increase our total acquisition costs; and
 
•    our investigation of a property or building prior to its acquisition, and any representations we may receive from the seller of such building or property, may fail to reveal various liabilities, which could reduce the cash flow from the property or increase our acquisition cost.
 
If we acquire a business, we will be required to merge and integrate the operations, personnel, accounting and information systems of such acquired business. In addition, acquisitions of or investments in companies may cause disruptions in our operations and divert management’s attention away from day-to-day operations, which could impair our relationships with our current tenants and employees.
 
We may face risks associated with property acquisitions.
 
We have in the past acquired, and intend to acquire in the future, properties, including large properties that would increase our size and potentially alter our capital structure. Although we believe that the acquisitions that we have completed in the past and that we expect to undertake in the future have, and will, enhance our future financial performance, the success of such transactions is subject to a number of uncertainties, including the risk that:
 
•    we may not be able to obtain financing for acquisitions on favorable terms;
 
•    acquired properties may fail to perform as expected;
 
•    the actual costs of repositioning or redeveloping acquired properties may be higher than our estimates;
 
•    acquired properties may be located in new markets where we may have limited knowledge and understanding of the local economy, absence of business relationships in the area or unfamiliarity with local governmental and permitting procedures; and
 
•     if we acquire new properties; we may not be able to efficiently integrate acquired properties, particularly portfolios of properties, into our organization and to manage new properties in a way that allows us to realize cost savings and synergies, which could impair our results of operations.
 
Some of the land we have purchased is not zoned for development purposes, and we may be unable to obtain, or may face delays in obtaining the necessary zoning permits and other authorizations.
 
We own several plots of land which are not zoned for the type of projects we intend to develop. In addition, we do not yet have the required land-use, building, occupancy and other required governmental permits and authorizations. We cannot assure you that we will continue to be successful in our attempts to rezone land and to obtain all necessary permits and authorizations, or that rezoning efforts and permit requests will not be unreasonably delayed or rejected. Moreover, we may be affected by building moratorium and anti-growth legislation. If we are unable to obtain all of the governmental permits and authorizations we need to develop our present and future projects as planned, we may be forced to make unwanted modifications to such projects or abandon them altogether.
 
Our ability to grow will be limited if we cannot obtain additional capital.
 
Our growth strategy is focused on the development and redevelopment of properties we already own and the acquisition and development of additional properties. As a result, we are likely to depend to an important degree on the availability of debt or equity capital, which may or may not be available on favorable terms or at all. We cannot guarantee that additional financing, refinancing or other capital will be available in the amounts we desire or on favorable terms. Our access to debt or equity capital markets depends on a number of factors, including the market’s perception of our growth potential, our ability to pay dividends, our financial condition, our credit rating and our current and potential future earnings. The capital and credit markets have been experiencing extreme volatility and disruption since the last credit crisis. The availability of financing will depend on a variety of factors, such as economic and market conditions, the availability of credit, as well as the possibility that lenders could develop a negative perception of our prospects or the industry generally. We may not be able to successfully obtain any necessary additional financing on favorable terms, or at all.
 
Serious illnesses and pandemics, such as the 2009 outbreak of Influenza A H1N1 virus (the “Swine Flu”), have in the past adversely affected consumer and tourist activity, may do so in the future and may adversely affect our results of operations.
 
As a result of the outbreak of Swine Flu during the winter of 2009, consumers and tourists dramatically changed their spending and travel habits to avoid contact with crowds. Furthermore, several governments´ enacted regulations limiting the operation of schools, cinemas and shopping centers. Even though the Argentine government only issued public service recommendations to the population regarding the risks involved in visiting crowded places, such as shopping centers, and did not issue specific regulations limiting access to public places, a significant number of consumers nonetheless changed their habits vis-a-vis shopping centers and malls. We cannot assure you that a new outbreak or health hazard will not occur in the future, or that such an outbreak or health hazard would not significantly affect consumer and/or tourist activity, and that such scenario would not adversely affect our businesses.
 
Adverse incidents that occur in our shopping centers may result in damage to our image and a decrease in the number of our customers.
 
Given that shopping centers are open to the public, with ample circulation of people, accidents, theft, robbery and other incidents may occur in our facilities, regardless of the preventative measures we adopt. In the event such an incident or series of incidents occurs, shopping center customers and visitors may choose to visit other shopping venues that they believe are safer and less violent, which may cause a reduction in the sales volume and operating income of our shopping centers.
 
Argentine Lease Law No. 23,091 imposes restrictions that limit our flexibility.
 
Argentine laws governing leases impose certain restrictions, including the following:
 
 •    lease agreements may not contain inflation adjustment clauses based on consumer price indexes or wholesale price indexes. Although many of our lease agreements contain readjustment clauses, these are not based on an official index nor do they reflect the inflation index. In the event of litigation these provisions may not be enforceable and therefore it may be impossible for us to adjust the amounts owed to us under our lease agreements;
 
•    residential leases must comply with a mandatory minimum term of two years and retail leases must comply with a mandatory minimum term of three years except in the case of stands and/or spaces for special exhibitions;
 
•    lease terms may not exceed ten years, except for leases regulated by Law No. 25,248 (which provides that leases containing a purchase option are not subject to term limitations); and
 
•    tenants may rescind commercial and office lease agreements after the initial six-month period.
 
As a result of the foregoing, we are exposed to the risk of increases of inflation under our leases and the exercise of rescission rights by our tenants could materially and adversely affect our business and we cannot assure you that our tenants will not exercise such right, especially if rent values stabilize or decline in the future or if economic conditions deteriorate.
 
Eviction proceedings in Argentina are difficult and time consuming.
 
Although Argentine law permits a summary proceeding to collect unpaid rent and a special proceeding to evict tenants, eviction proceedings in Argentina are difficult and time-consuming. Historically, the heavy workloads of the courts and the numerous procedural steps required have generally delayed landlords’ efforts to evict tenants. Eviction proceedings generally take between six months and two years from the date of filing of the suit to the time of actual eviction.
 
We have usually attempted to negotiate the termination of lease agreements with defaulting tenants after the first few months of non-payment in order to avoid legal proceedings. Delinquency may increase significantly in the future, and such negotiations with tenants may not be as successful as they have been in the past. Moreover, new Argentine laws and regulations may forbid or restrict eviction, and in each such case they would likely have a material and adverse effect on our financial condition and results of operation.
 
Our investment in property development, redevelopment and construction activities may be less profitable than we anticipate.
 
We are engage in the development and construction of shopping centers and residential apartment complexes, frequently through third-party contractors. Risks associated with our development, re-development and constructions activities include the following, among others:
 
•    abandonment of development opportunities and renovation proposals;
 
•    construction costs of a project may exceed our original estimates for reasons including raises in interest rates or increases in the costs of materials and labor, making a project unprofitable;
 
•    occupancy rates and rents at newly completed properties may fluctuate depending on a number of factors, including market and economic conditions, resulting in lower than projected rental rates and a corresponding lower return on our investment;
 
•    pre-construction buyers may default on their purchase contracts or units in new buildings may remain unsold upon completion of construction;
 
•    the unavailability of favorable financing alternatives in the private and public debt markets;
 
•    sale prices for residential units may be insufficient to cover development costs;
 
•    construction and lease-up may not be completed on schedule, resulting in increased debt service expense and construction costs;
 
•    impossibility to obtain, delays in obtaining, necessary zoning, land-use, building, occupancy and other required governmental permits and authorizations, or building moratoria and anti-growth legislation;
 
•    significant time lags between the commencement and completion of projects subjects us to greater risks due to fluctuation in the general economy;
 
•    construction may not be completed on schedule because of a number of factors, including weather, labor disruptions, construction delays or delays in receipt of zoning or other regulatory approvals, or man-made or natural disasters (such as fires, hurricanes, earthquakes or floods), resulting in increased debt service expense and construction costs; and
 
•    we may incur capital expenditures that could result in considerable time consuming efforts and which may never be completed due to government restrictions.
In addition, we may face contractors’ claims for the enforcement of labor laws in Argentina (sections 30, 31, 32 under Law No. 20,744), which provide for joint and several liability. Many companies in Argentina hire personnel from third-party companies that provide outsourced services, and sign indemnity agreements in the event of labor claims from employees of such third company that may affect the liability of such hiring company. However, in recent years several courts have denied the existence of independence in those labor relationships and declared joint and several liabilities for both companies.
 
 
While our policies with respect to expansion, renovation and development activities are intended to limit some of the risks otherwise associated with such activities, we are nevertheless subject to risks associated with the construction of properties, such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of our control, as well as financing costs, may exceed original estimates, possibly making the associated investment unprofitable. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm our operating results.
 
We are subject to great competitive pressure.
 
Our development activities are highly concentrated in the Buenos Aires metropolitan area, where the real estate market is highly competitive due to a scarcity of properties in sought-after locations and the increasing number of local and international competitors. Furthermore, the Argentine real estate industry is generally highly competitive and fragmented and does not have high barriers to entry restricting new competitors from entering the market. The main competitive factors in the real estate development business include availability and location of land, price, funding, design, quality, reputation and partnerships with developers. A number of residential and commercial developers and real estate services companies compete with us in seeking land for acquisition, financial resources for development and prospective purchasers and tenants. Other companies, including joint ventures of foreign and local companies, have become increasingly active in the real estate business and shopping center business in Argentina, further increasing this competition. To the extent that one or more of our competitors are able to acquire and develop desirable properties, as a result of greater financial resources or otherwise, our business could be materially and adversely affected. If we are not able to respond to such pressures as promptly as our competitors, or the level of competition increases, our financial condition and results of our operations could be adversely affected.
 
All of our shopping center properties are located in Argentina. There are other shopping centers and numerous smaller retail stores and residential properties within the market area of each of our properties. The number of competing properties in a particular area could have a material adverse effect on our ability to lease retail space in our shopping centers or sell units in our residential complexes and on the amount of rent or the sale price that we are able to charge. To date, there have been relatively few companies competing with us for shopping center properties. However, if additional companies become active in the Argentine shopping center market in the future, such competition could have a material adverse effect on our results of operations.
 
Our assets are highly concentrated in certain geographic areas and an economic downturn in such areas could have a material adverse effect on our financial condition.
 
For the fiscal year ended June 30, 2013, 78.9% of our sales from leases and services were derived from shopping centers in the City of Buenos Aires and the Gran Buenos Aires metropolitan area. Although we own properties and may acquire or develop additional properties outside of the City of Buenos Aires and the Gran Buenos Aires metropolitan area, we expect to continue to depend to a very large extent on economic conditions affecting those areas and therefore, an economic downturn in those areas could have a material adverse effect on our financial condition.
 
Our dependence on rental income may adversely affect our ability to meet our debt obligations.
 
The substantial majority of our income is derived from rental income from real property. As a result, our performance depends on our ability to collect rent from tenants. Our income and funds for distribution would be negatively affected if a significant number of our tenants, or any of our major tenants (as discussed in more detail below):
 
•  
Delay lease commencements;
 
•  
Decline to extend or renew leases upon expiration;
 
•  
Fail to make rental payments when due; or
 
•  
Close stores or declare bankruptcy.
 
Any of these actions could result in the termination of the tenant’s leases and the loss of rental income attributable to the terminated leases. In addition, we cannot be sure that any tenant whose lease expires will renew that lease or that we will be able to re-lease space on economically advantageous terms. The loss of rental revenues from a number of our tenants and our inability to replace such tenants may adversely affect our profitability and our ability to meet debt and other financial obligations in either Pesos or in a foreign currency.

Some potential losses are not covered by insurance and certain kinds of insurance coverage may become prohibitively expensive.

We currently carry insurance policies that cover potential risks such as civil liability, fire, loss profit, floods, including extended coverage and losses from leases on all of our properties. Although we believe the policy specifications and insured limits of these policies are generally customary, there are certain types of losses, such as lease and other contract claims, terrorism and acts of war that generally are not insured under the insurance policies offered in the national market. Should an insured loss or a loss in excess of insured limits occur, we could lose all or a portion of the capital we have invested in a property, as well as the anticipated future revenue from the property. In such an event, we might nevertheless remain obligated for any mortgage debt or other financial obligations related to the property. We cannot assure you that material losses in excess of insurance proceeds will not occur in the future. If any of our properties were to experience a catastrophic loss, it could seriously disrupt our operations, delay revenue and result in large expenses to repair or rebuild the property. Moreover, we do not purchase life or disability insurance for any of our key employees. If any of our key employees were to die or become incapacitated, we could experience losses caused by a disruption in our operations which will not be covered by insurance, and this could have a material adverse effect on our financial condition and results of operations.
 
In addition, we cannot assure you that we will be able to renew our insurance coverage in an adequate amount or at reasonable prices. Insurance companies may no longer offer coverage against certain types of losses, such as losses due to terrorist acts and mold, or, if offered, these types of insurance may be prohibitively expensive.
 
An uninsured loss or a loss that exceeds the policies on our properties could subject us to lost capital or revenue on those properties.
 
Under the terms and conditions of the leases currently in force on our properties, tenants are required to indemnify and hold us harmless from liabilities resulting from injury to persons, or property, on or off the premises, due to activities conducted on the properties, except for claims arising from our negligence or intentional misconduct or that of our agents. Tenants are generally required, at the tenant’s expense, to obtain and keep in full force during the term of the lease, liability and property damage insurance policies. In addition, we cannot assure the holders that the tenants will properly maintain their insurance policies or have the ability to pay the deductibles. Should a loss occur that is uninsured or in an amount exceeding the combined aggregate limits for the policies noted above, or in the event of a loss that is subject to a substantial deductible under an insurance policy, we could lose all or part of our capital invested in, and anticipated revenue from, one or more of the properties, which could have a material adverse effect on our operating results and financial condition.
 
Our level of debt may adversely affect our operations and our ability to pay our debt as it becomes due.

We had, and expect to continue to have, substantial liquidity and capital resource requirements to finance our business. As of June 30, 2013, our consolidated financial debt amounted to Ps. 1,190.8 million (including accrued and unpaid interests and deferred financing costs).

 Although we are generating sufficient funds from operating cash flows to satisfy our debt service requirements and our capacity to obtain new financing is adequate given the current availability of credit lines with the banks, we cannot assure you that we will maintain such cash flow and adequate financial capacity in the future.

The fact that we are leveraged may affect our ability to refinance existing debt or borrow additional funds to finance working capital, acquisitions and capital expenditures. In addition, the recent disruptions in the global financial markets, including the bankruptcy and restructuring of major financial institutions, may adversely impact our ability to refinance existing debt and the availability and cost of credit in the future. In such conditions, access to equity and debt financing options may be restricted and it may be uncertain how long these economic circumstances may last.

This would require us to allocate a substantial portion of cash flow to repay principal and interest, thereby reducing the amount of money available to invest in operations, including acquisitions and capital expenditures. Our leverage could also affect our competitiveness and limit our ability to changes in market conditions, changes in the real estate industry and economic downturns.

We may not be able to generate sufficient cash flows from operations to satisfy our debt service requirements or to obtain future financing. If we cannot satisfy our debt service requirements or if we default on any financial or other covenants in our debt arrangements, the lenders and/or holders of our debt will be able to accelerate the maturity of such debt or cause defaults under the other debt arrangements. Our ability to service debt obligations or to refinance them will depend upon our future financial and operating performance, which will, in part, be subject to factors beyond our control such as macroeconomic conditions (including the recent international credit crisis) and regulatory changes in Argentina. If we cannot obtain future financing, we may have to delay or abandon some or all of our planned capital expenditures, which could adversely affect our ability to generate cash flows and repay our obligations.

The recurrence of a credit crisis could have a negative impact on our major customers, which in turn could materially adversely affect our results of operations and liquidity.

The recent credit crisis had a significant negative impact on businesses around the world. The impact of a crisis on our major tenants cannot be predicted and may be quite severe. A disruption in the ability of our significant tenants to access liquidity could cause serious disruptions or an overall deterioration of their businesses which could lead to a significant reduction their future orders of their products and the inability or failure on their part to meet their payment obligations to us, any of which could have a material adverse effect on our results of operations and liquidity.
 
The shift of consumers to purchasing goods over the Internet may negatively affect sales in our shopping centers.
 
During the last years, retail sales by means of the Internet have grown significantly in Argentina, even though the market share of Internet sales related to retail sales is still not significant. The Internet enables manufacturers and retailers to sell directly to consumers, diminishing the importance of traditional distribution channels such as retail stores and shopping centers. We believe that our target consumers are increasingly using the Internet, from home, work or elsewhere, to shop electronically for retail goods, and this trend is likely to continue. If e-commerce and retail sales through the Internet continue to grow, consumers’ reliance on traditional distribution channels such as our shopping centers could be materially diminished, having a material adverse effect on our financial condition, results of operations and business prospects.
 
Our business is subject to extensive regulation and additional regulations may be imposed in the future.
 
Our activities are subject to federal, state and municipal laws, and to regulations, authorizations and licenses required with respect to construction, zoning, use of the soil, environmental protection and historical patrimony, consumer protection, antitrust and other requirements, all of which affect our ability to acquire land, buildings and shopping centers, develop and build projects and negotiate with customers. In addition, companies in this industry are subject to increasing tax rates, the creation of new taxes and changes in the taxation regime. We are required to obtain licenses and authorizations with different governmental authorities in order to carry out our projects. Maintaining our licenses and authorizations can be a costly provision. In the case of non-compliance with such laws, regulations, licenses and authorizations, we may face fines, project shutdowns, and cancellation of licenses and revocation of authorizations.
 
In addition, public authorities may issue new and stricter standards, or enforce or construe existing laws and regulations in a more restrictive manner, which may force us to make expenditures to comply with such new rules. Development activities are also subject to risks relating to potential delays in obtaining or an inability to obtain all necessary zoning, environmental, land-use, development, building, occupancy and other required governmental permits and authorizations. Any such delays or failures to obtain such government approvals may have an adverse effect on our business.
 
 
In the past, the Argentine government imposed strict and burdensome regulations regarding leases in response to housing shortages, high rates of inflation and difficulties in accessing credit. Such regulations limited or prohibited increases on rental prices and prohibited eviction of tenants, even for failure to pay rent. Most of our leases provide that the tenants pay all costs and taxes related to their respective leased areas. In the event of a significant increase in the amount of such costs and taxes, the Argentine government may respond to political pressure to intervene by regulating this practice, thereby negatively affecting our rental income. We cannot assure you that the Argentine government will not impose similar or other regulations in the future. Changes in existing laws or the enactment of new laws governing the ownership, operation or leasing of properties in Argentina could negatively affect the Argentine real estate market and the rental market and materially and adversely affect our operations and profitability.
 
We are controlled by one principal shareholder.
 
As of June 30, 2013, IRSA Inversiones y Representaciones Sociedad Anónima (“IRSA”), our major shareholder, owned in the aggregate 95.7% of our capital stock. This principal shareholder controls us and has significant influence on the election of our directors and members of the supervisory committee and the outcome of any action requiring shareholder approval.
 
We are dependent on our Board of Directors.
 
Our success, to a significant extent, depends on the continued employment of Eduardo Sergio Elsztain and certain other members of our board of directors and senior management, who have significant expertise and knowledge of our business and industry. The loss or interruption in of his services for any reason could have a material adverse effect on our business and results of operations. Our future success also depends in part upon our ability to attract and retain other highly qualified personnel. We cannot assure you that we will be successful in hiring or retaining qualified personnel, or that any of our personnel will remain employed by us.
 
Due to the currency mismatches between our assets and liabilities, we may have currency exposure.
 
As of June 30, 2013, the majority of our liabilities, such as our Series I Notes are denominated in U.S. Dollars while our revenues are denominated in Pesos. This currency gap exposes us to a risk of exchange rate volatility, which would negatively affect our financial results if the dollar were to appreciate against the Peso. Any further depreciation of the Peso against the U.S. Dollar will correspondingly increase the amount of our debt in Pesos, with further adverse effects on our results of operation and financial condition and may increase the collection risk of our leases and other receivables from our tenants and mortgage debtors, most of whom have Peso-denominated revenues.
 
Risks Relating to our ADSs and our Common Shares
 
Shares eligible for sale could adversely affect the price of our shares and American Depositary Shares (“ADS”).
 
The market prices of our common shares and the ADSs could decline as a result of sales by our existing shareholders of common shares or ADSs in the market, or the perception that these sales could occur. These sales also might make it difficult for us to sell equity securities in the future at a time and at a price that we deem appropriate.
 
The ADSs are freely transferable under U.S. securities laws, including shares sold to our affiliate. IRSA, which as of June 30, 2013 own approximately 95.7% of our common shares (or approximately 1,205,765,014 common shares which may be exchanged for an aggregate of 30,144,125 ADSs), is free to dispose of any or all of its common shares or ADSs at any time in its discretion. Sales of a large number of our common shares and/or ADSs would likely have an adverse effect on the market price of our common shares and the ADSs.
 
We are subject to certain different corporate disclosure requirements and accounting standards than domestic issuers of listed securities in the United States.
 
There may be less publicly available information about the issuers of securities listed on the Buenos Aires Stock Exchange (the “Bolsa de Comercio de Buenos Aires”or “Base”) than is regularly published by or about domestic issuers of listed securities in the United States and certain other countries.
 
We are exempt from the rules under the Exchange Act prescribing the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
 
Investors may not be able to effect service of process within the U.S., limiting their recovery of any foreign judgment.

We are a publicly held stock corporation (sociedad anónima) organized under the laws of Argentina. Most of our directors and our senior managers, and most of our assets are located in Argentina. As a result, it may not be possible for investors to effect service of process within the United States upon us or such persons or to enforce against us or them in United States courts judgments obtained in such courts predicated upon the civil liability provisions of the United States federal securities laws. There is doubt whether the Argentine courts will enforce, to the same extent and in as timely a manner as a U.S. or foreign court, an action predicated solely upon the civil liability provisions of the United States federal securities laws or other foreign regulations brought against such persons or against us.
 
If we are considered to be a passive foreign investment company for United States federal income tax purposes, U.S. Holders of our shares or ADSs would suffer negative consequences.
 
Based on the current and projected composition of our income and valuation of our assets we do not believe we were a passive foreign investment company (“PFIC”), for United States federal income tax purposes for the tax year ending June 30, 2013, and we do not currently expect to become a PFIC, although there can be no assurance in this regard. The determination of whether we are a PFIC is made annually. Accordingly, it is possible that we may be a PFIC in the current or any future taxable year due to changes in our asset or income composition or if our projections are not accurate. The volatility and instability of Argentina’s economic and financial system may substantially affect the composition of our income and assets and the accuracy of our projections. In addition, this determination is based on the interpretation of certain U.S. Treasury regulations relating to rental income, which regulations are potentially subject to differing interpretation.If we become a PFIC, U.S. Holders (as defined in “TaxationUnited States Taxation”) of our shares or ADSs will be subject to certain United States federal income tax rules that have negative consequences for U.S. Holders such as additional tax and an interest charge upon certain distributions by us or upon a sale or other disposition of our shares or ADSs at a gain, as well as reporting requirements. Please see ‘‘TaxationUnited States Taxation’’ for a more detailed discussion of the consequences if we are deemed a PFIC. You should consult your own tax advisors regarding the application of the PFIC rules to your particular circumstances.
 
Holders of our ADSs may be unable to exercise voting rights with respect to the common shares underlying the ADSs at our shareholders’ meetings.
 
We will not treat the holders of our ADSs as one of our shareholders and the holders of our ADSs will not have shareholder rights. The depositary will be the holder of the common shares underlying your ADSs and ADS holders may exercise voting rights with respect to the common shares represented by the ADSs only in accordance with the deposit agreement relating to the ADSs. There are no provisions under Argentine law or under our by-laws that limit the exercise by ADS holders of their voting rights through the depositary with respect to the underlying common shares. However, there are practical limitations on the ability of ADS holders to exercise their voting rights due to the additional procedural steps involved in communicating with these holders. For example, holders of our common shares will receive notice of shareholders’ meetings through publication of a notice in an Official Gazette in Argentina, an Argentine newspaper of general circulation and the bulletin of the Buenos Aires Stock Exchange, and will be able to exercise their voting rights by either attending the meeting in person or voting by proxy. ADS holders, by comparison, will not receive notice directly from us. Instead, in accordance with the deposit agreement, we will provide the notice to the depositary. The depositary will mail to holders of ADSs the notice of the meeting and a statement as to the manner in which instructions may be given by holders. To exercise their voting rights, ADS holders must then instruct the depositary as to voting the common shares represented by their ADSs. Due to these procedural steps involving the depositary, the process for exercising voting rights may take longer for ADS holders than for holders of common shares and common shares represented by ADSs may not be voted as their desire.
 
Under Argentine law, shareholder rights may be fewer or less well defined than in other jurisdictions.
 
Our corporate affairs are governed by our by-laws and by Argentine corporate law, which differ from the legal principles that would apply if we were incorporated in a jurisdiction in the United States, such as the States of Delaware or New York, or in other jurisdictions outside Argentina. In addition, your rights or the rights of holders of our common shares to protect your or their interests in connection with actions by our board of directors may be fewer and less well defined under Argentine corporate law than under the laws of those other jurisdictions. Although insider trading and price manipulation are illegal under Argentine law, the Argentine securities markets are not as highly regulated or supervised as the U.S. securities markets or markets in some other jurisdictions. In addition, rules and policies against self—dealing and regarding the preservation of shareholder interests may be less well defined and enforced in Argentina than in the United States, putting holders of our common shares and ADSs at a potential disadvantage.
 
The protections afforded to minority shareholders in Argentina are different from and more limited than those in the United States and may be more difficult to enforce.
 
Under Argentine law, the protections afforded to minority shareholders are different from, and much more limited than, those in the United States and some other Latin American countries. For example, the legal framework with respect to shareholder disputes, such as derivative lawsuits and class actions, is less developed under Argentine law than under U.S. law as a result of Argentina’s short history with these types of claims and few successful cases. In addition, there are different procedural requirements for bringing these types of shareholder lawsuits. As a result, it may be more difficult for our minority shareholders to enforce their rights against us or our directors or controlling shareholder than it would be for shareholders of a U.S. company.

Our ability to pay dividends is limited by law.

In accordance with Argentine corporate law we may pay dividends to shareholders out of net and realized profits, if any, as set forth in our audited financial statements prepared in accordance with Argentine GAAP. The approval, amount and payment of dividends are subject to the approval by our shareholders at our annual ordinary shareholders meeting. The approval of dividends requires the affirmative vote of a majority of the shareholders entitled to vote at the meeting. As a result, we cannot assure you that we will be able to generate enough net and realized profits so as to pay dividends or that our shareholders will decide that dividends will be paid.

Our shareholders’ ability to receive cash dividends may be limited.

Our shareholders’ ability to receive cash dividends may be limited by the ability of the depositary to convert cash dividends paid in Pesos into U.S. Dollars. Under the terms of our deposit agreement with the depositary for the ADSs, to the extent that the ADS depositary can in its judgment, and in accordance with local exchange regulations, convert Pesos (or any other foreign currency) into U.S. Dollars on a reasonable basis and transfer the resulting U.S. Dollars abroad, the ADS depositary will promptly as practicable convert or cause to be converted all cash dividends received by it in Pesos on the deposited securities into U.S. Dollars. If in the judgment of the depositary this conversion is not possible on a reasonable basis (or is not permitted by applicable Argentine laws, regulations and approval requirements), the ADS depositary may distribute the foreign currency received by it in Pesos in Argentina or in its discretion hold such currency uninvested for the respective accounts of the owners entitled to receive the same. As a result, if the exchange rate fluctuates significantly during a time when the depositary cannot convert the foreign currency, you may lose some or all of the value of the dividend distribution.

 
 
Information on the Company
 

General Information

Our legal name is “Alto Palermo S.A. (APSA)” and our commercial name is Alto Palermo Centros Comerciales. We were authorized and incorporated by Executive Decree issued by the Argentine Executive Branch on August 29, 1889, registered under No. 126 of Page 268 of Book IV, and registered in the Public Registry of Commerce of the City of Buenos Aires on February 27, 1976 under No. 323 on Page 6 of Book 85, Volume A of Argentine Corporations. Pursuant to our bylaws, our term of duration expires on August 28, 2087. Our shares are listed and traded on the Bolsa de Comercio de Buenos Aires and our ADS on the NASDAQ. Our headquarters and principal executive offices are located at Moreno 877, 22nd Floor, (C1091AAQ), Ciudad Autónoma de Buenos Aires, Argentina. Our telephone is (+54 11) 4344-4600. Our Depositary Agent for the ADS in the United States is Bank of New York Mellon whose address is PO Box 358516, Pittsburgh, PA 15252-8516, and whose telephone is (+1 201) 680-6825. Our website is www.apsacc.com.ar. Information contained in or accessible through our website is not a part of this annual report. All references in this annual report to this or other internet sites are inactive textual references to these URLs, or “uniform resources locator” and are for your information reference only. We assume no responsibility for the information contained on such sites.
 
History
 
We were organized in 1889 under the name “Sociedad Anónima Mercado de Abasto Proveedor (SAMAP)”, and until 1984, we owned and operated the main fresh products market in the City of Buenos Aires. Our main asset during that period was the historic Mercado de Abasto building which served as the location of the market from 1889 to 1984, moment in which we leased our operations. In July 1994, IRSA acquired a controlling interest in us and, subsequently, we resumed real estate operations. Since then, we have continued to grow through a series of acquisitions and the development of our businesses. In April 1997, we merged with fourteen of our wholly owned subsidiaries, including Alto Palermo S.A., and subsequently changed our name from “Sociedad Anónima Mercado de Abasto Proveedor (SAMAP)” to “Alto Palermo S.A. (APSA)”.

Significant acquisitions, dispositions and development of businesses

The following is a description of the most significant events in terms of acquisitions, divestitures, real estate barter transactions and other transactions which occurred during the years ended June 30, 2013 and 2012:

Fiscal Year Ended June 30, 2013

Acquisitions
 
Additional purchase Arcos Gourmet

On June 7, 2013, we purchased additional shares of Arcos del Gourmet S.A. representing 1.815% of its capital stock and votes for a total amount of US$ 0.8 million.

La Rural
 
In November 2012, we acquired 50% of Entertainment Holdings S.A.’s (“EHSA”) capital stock for a total amount of Ps. 32.0 million. EHSA is the indirect holder of 50.0% of the shares and votes of the capital stock of La Rural S.A., a company that has the usufruct right pursuant to a concession contract for the management of “Predio Ferial de Palermo” in the City of Buenos Aires. Accordingly, our indirect interest in La Rural S.A.´s capital stock amounts to 25.0%.
 
On September 25 of 2013, Sociedad Rural Argentina (SRA), La Rural de Palermo S.A. (LRPSA), Boulevard Norte S.A. (BNSA), Ogden Argentina S.A., Entertainment Holdings S.A. (EH), Entretenimiento Universal S.A., and La Rural S.A., entered into an agreement that mainly consist of an amendment to the preexisting agreements under the joint venture pursuant to which they agreed to revise, amend and/or clarify certain provisions. Following this agreement, we are currently in the process of evaluating any potential effect on the preliminary purchase price allocation of its joint venture acquisition.
 
 
Fiscal Year Ended June 30, 2012

Acquisitions

Lujan Plot

On May 22, 2012, we completed the acquisition of a plot of land of 115 hectares in Lujan, Province of Buenos Aires from Cresud S.A.C.I.F. y A. (“Cresud”), the parent of our controlling shareholder, for a total amount of US$ 8.96 million, which as of the date of this annual report has been fully paid. This transaction was carried out in order to develop a mixed purpose project in the future since the land is located in an area and has scale features that are apt for business development. In addition, the land already has the requisite municipal  authorization and zoning permits to allow for development.

Acquisition of shares in Quality Invest S.A.

On May 30, 2012, we acquired 100% of the equity interest owned by IRSA, our controlling shareholder, in the equity of Quality Invest S.A., representing 50% of the capital stock of Quality Invest S.A., for a total amount of US$ 9.7 million, which has been fully paid.

In March 2011, Quality Invest S.A. acquired the industrial plant from Nobleza Piccardo S.A.I.C. y F. located in the district of San Martín, Province of Buenos Aires, with a total area of 160,000 square meters, 80,000 of which is a covered area with high quality warehouses currently being used for industrial purposes. Furthermore, Quality Invest S.A. has recently obtained pre-approval by the Municipality of San Martín to extend of the purposes for which the property can be used, including shopping center, entertainment, events, commercial offices, parking and other ancillary uses.

Based on these considerations and the strategic location of the property, we plan to develop a shopping center in the future.

Acquisition of shares of TGLT S.A.

We acquired additional shares of TGLT S.A. ("TGLT") amounting to 262,927 common shares in August 2011. As of June 30, 2013, we owned a 9.49% interest in TGLT.

Contribution to Don Mario S.G.R. (“Don Mario”)

On June 29, 2012, the Secretaría de Pequeña y Mediana Empresa (the “SME under secretariat”) authorized our incorporation as “Protector Partner” (Socio Protector) of Don Mario S.G.R., Sociedad de Garantía Recíproca ("Don Mario"). Moreover, we made a contribution to Don Mario’s Risk Fund in the amount of Ps. 10 million, in our capacity of Protector Partner. the Sociedades de Garantia Reciproca are funded through the contributions of investors who in turn obtain certain tax benefits for income tax purposes.

Additionally, Don Mario assigned and transferred to us five Class “B” shares, with a face value of Ps. 1 each and entitled to one vote per share, for the amount of Ps. 0.005 which have been paid in cash. These shares are symbolic and merely represent our right over the investment. These shares neither grant control nor significant influence over the actions of Don Mario. We must maintain the investment in the Sociedades de Garantia Reciproca for a minimum period of 2 years and we must grant with our contribution certain financing obtained by PyME´s of our supply chain to make use of the tax benefit.
 
Dispositions

Apsamedia

On October 7, 2011, Apsamedia S.A., as trustor, together with Comafi Fiduciario Financiero S.A., acting as trustee of the “Fideicomiso Financiero Privado Yatasto”, as original holder, created a private financial trust named "Consumo Centro”, to which Apsamedia S.A. assigned under trust the legal ownership of certain receivables that were not in good standing, including, personal loans, credit card receivables and refinanced receivables generated by Apsamedia S.A. in the ordinary course of business, which we anticipate will be emitted as pass-throughs in favor of the original holder.

Sale of units of Torres de Rosario under construction

During this fiscal year we sold different units related to the lot designated as “2H” of Torres de Rosario under construction for Ps. 4.3 million.

Developments

Apsamedia (Metroshop’s continuing Company)

On July 20, 2011, a Special General Shareholders´ Meeting of Metroshop S.A. (“Metroshop”) approved by unanimous consent the change of corporate name to Apsamedia S.A. and the amendment of its corporate purpose to capitalize on market opportunities. Such amendments were registered under the Public Registry of Commerce on August 29, 2011 under number 17,795.

Apsamedia will continue providing its services, which have been broadened in scope to the following areas:

 - Consumer credit marketing and financing.
 - Issuance and marketing of credit cards.
 - Performance of any type of agency and representation.
 - Management of administrative, advertisement and commercial activities.


During this fiscal year, Apsamedia started to develop the leasing of advertising space business in our shopping centers.

Arcos del Gourmet
 
On September 6, 2011, Arcos del Gourmet S.A. ("AGSA") signed a Retrofitting Concession with the Administración de Infraestructuras Ferroviarias (the Railway Infrastructure Administration or “ADIF”), which transferred the railway assets under the jurisdiction of the Organismo Nacional de Administración de Bienes (“ONABE”), pursuant to which it was decided to extend the term of the grant until December 31, 2030, automatically renewable for three years and four months after that date if the commitments are satisfactorily performed. This new contract provides an additional extension of three years if AGSA determines it is necessary. It also established a maximum period of 24 months (counted from the day of signing the contract) to carry out the works and opening of the shopping center. The aforementioned contract established a new monthly fee of Ps. 0.2 million (plus VAT) until December 31, 2025, and Ps. 0.25 million (plus VAT) from January 1, 2026. Notwithstanding the foregoing, in the future and until the end of the concession period the charges shall be re-calibrated every two years.
 
 
Additionally, to secure the fulfillment of the agreement, we committed to contract a surety bond for Ps.4.46 million, to make a cash deposit of Ps. 0.40 million and to contract another surety bond in favor of ADIF in the amount of Ps. 14.95 million as collateral to our execution of the works agreed in due time and proper form. This agreement replaces the one subscribed with ONABE.
 
On September 7, 2011, we acquired an additional 8.185% interest in AGSA for US$1.75 million in cash consideration. As part of this acquisition, we have renegotiated certain terms of the original acquisition agreement pursuant to which AGSA will contribute 10% of each capital call required to avoid the minority shareholders´ dilution. This obligation is capped at US$ 3.5 million and is recognized under seller financing in short-term and long-term debt.
 
In December 2011, we started to develop the “Arcos” project located in the neighborhood of Palermo, City of Buenos Aires. This project, which will follow an urban space model, aspires to be a distinct proposal, offering a variety of premium brands in an open-air environment. This new urban space is expected to open by the end of 2013, and will add approximately 13,000 square meters of gross leaseable area and 70 stores to our portfolio, featuring its fourteenth shopping center.

Shopping Neuquén project

On June 4, 2012, Shopping Neuquén S.A. (“Shopping Neuquen”) entered into an agreement with the Municipality whereby it agreed to perform the construction works in one stage of the Shopping Center, based on the new schedule which provides a maximum construction term of 24 months computed from the execution of the relevant Works Commencement Minutes. Such agreement was approved by Decree N° 0572 issued by the Municipality of Neuquén on June 8, 2012.

If we fail to comply with the conditions established in the agreement, the Municipality is entitled to terminate the agreement and carry out the actions that may be considered necessary, including to request the return of the plots of the Shopping Center acquired to the Municipality.

Fiscal Year Ended June 30, 2011

Acquisitions

Acquisition of Soleil Factory shopping center business

On December 28, 2007, we and INCSA executed a letter of intent to acquire, build and manage a shopping center in a plot of land owned by INCSA, located in the City of San Miguel de Tucumán, Province of Tucumán. This transaction was contingent upon the acquisition of the Soleil Factory shopping center. Upon completion of the acquisition of the Soleil Factory in July 1, 2010, as described below, we were obligated to commence the construction works on the site on May 2, 2011. However, INCSA shall comply with certain obligations prior to the commencement of said works, such as (i) delivery of the title deed of the plot and (ii) INCSA was obligated to transfer the rights and permits on the architectural project to us.

On July 1, 2010, we and INCSA entered into an agreement pursuant to which the Soleil Factory shopping center and other fixed assets were transferred to us. The transaction excluded any receivable or payable arising out of INCSA’s business prior to the transaction and also excluded a building, which currently is being operated as a hypermarket within the same premises. INCSA transferred the deed of title to us on August 3, 2011. The transaction was authorized by the Comisión Nacional de Defensa de la Competencia, the antitrust authority in Argentina, on April 12, 2011.

Paraná plot of land

On August 12, 2010, we acquired a 10,022 square meters property in the City of Paraná, Province of Entre Ríos, Argentina for US$ 0.5 million. We paid US$ 0.15 million and the remaining balance of US$ 0.35 million will be paid at the time the title is obtained.

According to the agreement, the deeds of title will be transferred within 60 days after the following conditions are fulfilled: (i) we obtain the required municipal permits, or (ii) the seller obtains the lot subdivision, whichever occurs later. None of these conditions have occurred as of the date of this annual report. On March 18, 2011, the Municipality of Paraná granted a pre-clearance to construct a shopping mall on the premises, although definitive permits are still pending.

Acquisition of shares of TGLT S.A.

On November 4, 2010, we acquired 5,214,662 shares of common stock of TGLT following its initial public offering for an amount of Ps. 47.1 million in cash.

We acquired additional shares of TGLT amounting to 42,810, 98,000 and 876,474 common shares between December 2010 and April 2011. We invested a total of Ps. 56.3 million to acquire the TGLT shares. As of June 30, 2011, we had an 8.86% interest in TGLT.

Acquisition of Metroshop shares

On January 13, 2011, we purchased 18,400,000 registered, non-endorsable shares of common stock with a face value of Ps. 1 each and one vote per Class B share, representing 50% of Metroshop’s common capital stock. As of June 30, 2011 we held 100% of Metroshop´s common capital stock. See the section Dispositions for details on the dispositions of certain main assets of Metroshop.

Acquisition of Torodur S.A.’s shares

On June 13, 2011, we acquired for a de minimis consideration a 100% interest in the capital stock of Torodur S.A., a Uruguayan-based shell entity with no significant assets and/or operations. Previously, IRSA held 98% of this entity and the remaining 2% was held equally by CAM Communications LP (Bermuda), (formerly Elsztain Realty Partners Master Fund II LP), and CAM Communications LP (Delaware).

On June 15, 2011, Torodur S.A. acquired 16.66% of Nuevo Puerto Santa Fe S.A.’s (“NPSF”) shares for US$ 1.5 million.

Acquisition of NPSF’s shares

On June 15, 2011, we acquired from Boldt S.A. and Inverama S.L., two unrelated companies, a 50% interest in the capital stock of NPSF (33.34% direct and 16.66% through Torodur S.A.), a company that acts as a lessee of a property built and operated as a shopping center in the port of the city of Santa Fe, Province of Santa Fe. The purchase price was US$ 4.5 million, of which we paid US$ 0.377 million. The balance will be paid in monthly non-interest bearing installments due on February 2013.

The acquisition was contingent upon the approvals by the Ente Regulador del Puerto de Santa Fe (Regulatory Entity of the Port of Santa Fe) and the Caja de Asistencia Social Lotería de Santa Fe which were obtained subsequent to year-end, on August 18, 2011.

Dispositions

Negotiation between Metroshop and Tarshop S.A. (“Tarshop”)

On January 13, 2011, as an action subsequent to the purchase of the remaining 50% of Metroshop’s shares by us, Metroshop transferred the following assets to Tarshop:
 
 
i) Receivables from consumption transactions carried out through December 31, 2010 and that are performing or in default for not more than 60 days (both those in Metroshop’s own portfolio and those assigned to Fideicomiso Financiero Metroshop Serie XV).
 
 
ii) The contractual position in the credit card issuance agreements whose customers did not have as of December 31, 2010 a default for over 60 days in complying with their obligations.
 
          iii) All credit card customers or accounts and consumer loans.
 
          iv) Lease agreements on certain branches and their personal property.
 
          v) Labor agreements for payroll personnel.

Sale of plots of land

On May 18, 2010 we sold two plots of land located at 3128 and 3134 Carlos Gardel Street in the City of Buenos Aires for US$ 0.46 million, which was collected in full. On July 5, 2010 the deed of title was executed.

Sale of 80% equity interest in Tarshop
 
Our Board of Directors approved the sale of a 80% interest in Tarshop to Banco Hipotecario S.A. (“Banco Hipotecario”) for a sale price of US$ 26.8 million. The transaction was approved by the Banco Central de la República Argentina, and subsequently was closed on September 13, 2010. The terms and conditions of the sale agreement include a non-compete agreement clause in the credit card or consumer financing segment in which Tarshop operates for a period of 5 years.
 
Sale of Rosario plots of land

On April 14, 2010, we sold the plot of land designated as “2A” of a parcel of land located in the District of Rosario, City of Rosario, Province of Santa Fe for US$ 4.2 million, paid in full as of June 30, 2011.

On May 3, 2010, we sold the lot designated as “2E” for US$ 1.4 million paid in full as of June 30, 2011.

On November 10, 2010, we sold the lot designated as “2F” for US$ 1.9 million, of which US$ 1.3 million was paid as of June 30, 2011 with the remaining balance collected on July 6, 2011.

On December 3, 2010, we sold the lots designated as “2B”, “2C” and “2D” for US$ 1.5 million each, of which US$ 3 million was paid in full as of June 30, 2011 and US$ 1.3 million (lot”2D”) will be collected upon execution of the deed of title.
 
 
Developments

Neuquén Project, Province of Neuquén

The main asset of the project is a plot of land of approximately 50,000 square meters. The project contemplates the construction of a shopping center, a hypermarket, a hotel and an apartment building.

On June 4, 2012, pursuant to an agreement entered into between Shopping Neuquén S.A. and the Municipality of Neuquén, which amended the agreement dated as of June 12th, 2009, establishing a new timeframe for the construction works, followed by the appointment of a new independent constructor; in that sense, the new deadline for the construction works schedules a termination date of 24 month for the construction; as of the date of this Annual Report the construction works are in progress.

Barter Transactions
 
Barter agreement with TGLT

On October 13, 2010, we and TGLT, a real estate developer in Argentina, entered into barter agreement by which a plot of land located at Berutti 3351/3359, at the junction of Bulnes Street and Coronel Díaz Avenue in Palermo, a neighborhood in the City of Buenos Aires close to “Alto Palermo Shopping” was bartered for certain units of the building to be built. The property has a surface of 3,207 square meters. This transaction has represented a significant acquisition because of the strategic location of the property, in the immediate vicinity of one of our main shopping centers. As consideration, TGLT agreed to transfer to us (i) certain units to be determined, representing 17.33% of the aggregate surface of the units to be built, (ii) a number of parking spaces to be determined, representing 15.82% of the aggregate surface of the parking spaces to be built, (iii) all the commercial parking spots and (iv) US$ 10.7 million, which were paid upon the execution of the purchase deed in favor of TGLT. The transaction was subject to certain precedent conditions including the completion by TGLT of its initial public offering. TGLT completed its initial public offering in the Bolsa de Comercio de Buenos Aires on October 29, 2010 therefore; the precedent condition for the transaction was fulfilled on that date. TGLT paid the US$ 10.7 million on November 5, 2010. On December 16, 2010, the title deed to the Berutti plot of land was executed. To ensure performance of obligations assumed by TGLT under the deed of sale, a mortgage was granted in favor of us.
 
An association named Asociación Amigos Alto Palermo presented an injunction requesting that the construction is prohibited and obtained a suspension interim measure for this purpose. Later, the Court of Appels from the Authonomous City of Buenos Aires ordered the lifting of such interim measure. As of June 30, 2013, there is no impediment to progress with the works.
 
Capital Expenditures

Fiscal year 2013

For the fiscal year ended June 30, 2013 we invested Ps. 222.9 million in capital expenditures: (i) Ps. 144.2 million were related to the development of properties, corresponding Ps. 117.9 million to “Arcos” project and Ps. 26.3 million to Shopping Neuquén project; (ii) Ps. 53.3 million were allocated to improvements made to our shopping centers; (iii) Ps. 15.8 million were related to suppliers advances; (iv) Ps. 7.8 million were allocated to the acquisition of furniture and fixtures, machinery and equipment, and other buildings and facilities; (v) Ps. 1.8 million were related to the acquisition of plots of lands.

Fiscal year 2012

For the fiscal year ended June 30, 2012 we invested Ps. 116.4 million in capital expenditures: (i) Ps. 40.1 million were related to the acquisition of plots of lands; (ii) Ps. 34.8 million were allocated to improvements made to our shopping centers; (iii) Ps. 23.9 million were related to the development of properties, corresponding Ps. 18.4 million to “Arcos” project and Ps. 5.5 million to Shopping Neuquén project; (iv) Ps. 9.4 million were allocated to suppliers advances; (v) Ps. 5.8 million were related to the acquisition of furniture and fixtures, machinery and equipment, and other buildings and facilities; (vi) Ps. 2.4 million were allocated to improvements made to our office buildings and other rental properties.

Recent Developments

Shareholders´Meeting

Our 2013 annual meeting of shareholders will be held on October 31, 2013, at Bolívar 108 1st Floor, City of Buenos Aires, in order to consider and approve, among others, (i) the annual financial statements for the period ended June 30, 2013, (ii) the performance of the Board of Directors and Supervisory Committee, (iii) treatment and allocation of results, (iv) Updating of Shared Services Agreement report, (v) Updating of the report on Incentive Plan for the benefit of the officers of according to the provisions approved and ratified by 2009/2010/2012 and 2013 Shareholders' Meetings respectively, and (vi) appointment of Directors, Members of the Supervisory Committee, and Certifying Accountant.

Acquisition of Avenida
 
On August 30, we suscribed through a subsidiary, 3,703,704 shares of Avenida Inc., representing 26.09% of its outstanding capital. Avenida Inc. will be engaged in the e-commerce business. The transaction price was Ps. 13.0 million, which have already been fully paid. We have an option to increase its interest up to 37.04% of the capital stock of the company.
 
 
Operations and principal activities
 
We are mainly engaged in the ownership, purchase, development, lease, management and operation of shopping centers, and we are one of the leading owners and managers of shopping centers in Argentina in terms of gross leasable area and number of shopping centers. At present, we own and/or operate thirteen shopping centers in Argentina, six of which are located in the Buenos Aires metropolitan area (Abasto, Paseo Alcorta, Alto Palermo, Patio Bullrich, Buenos Aires Design and Dot Baires), two in the Greater Buenos Aires area (Alto Avellaneda and Soleil) and five in the provinces of Córdoba, Mendoza, Salta and Santa Fe (Alto NOA in Salta, Alto Rosario and La Ribera Shopping in Santa Fe, Mendoza Plaza in Mendoza and Córdoba Shopping-Villa Cabrera in Córdoba). We are also owners of certain properties for future development in Buenos Aires and various important cities in the Argentine provinces.

As of June 30, 2013, our shopping centers had a total of 308,793 square meters of gross leasable area (excluding space occupied by hypermarkets which are not our tenants). Total tenant sales in our shopping centers, as reported by our tenants, were approximately Ps. 12,482.0 million during the fiscal year ended June 30, 2013 and Ps. 9,966.4 million for the fiscal year ended June 30, 2012. Tenant sales at our shopping centers are relevant to our revenues and profitability, because they are one of the principal factors that determine the amount of rent that we charge our tenants.

As of June 30, 2013, we held total assets of Ps. 3,054.8 million, and our shareholders’ equity was Ps. 1,010.8 million. During the fiscal year ended June 30, 2013, we recorded revenues of Ps. 1,637.4 million, and generated an operating income of Ps. 721.7 million.

We operate our business through four reportable segments, namely “Shopping Centers”, “Office and Other Rentals”, “Development and Sale of Properties” and “Financial Operations and Others” as further described below:

·  
Our Shopping Centers segment includes the operating results from our portfolio of shopping centers principally comprised of lease and service revenue from tenants. Our Shopping Centers segment had assets of Ps. 1,625.2 million and Ps. 1,514.8 million as of June 30, 2013 and 2012, respectively, representing 78.2 % and 87.4 % of our total consolidated assets at such dates, respectively. Our Shopping Centers segment generated operating income of Ps. 713.7 million and Ps. 594.8 for the financial years ended June 30, 2013 and 2012, respectively, representing 98.4 % and 94.8 %, of our consolidated operating income for such years, respectively.
 
·  
Our “Offices and Other Rentals” segment includes the operating results of our lease and service of office space and other non-retail building properties principally comprised of lease and service revenue from tenants. Our Offices and Other Rentals segment had assets of Ps. 135.8 million and Ps. 147.7 million as of June 30, 2013 and 2012, respectively, representing 7.2 % and 8.3% of our total consolidated assets at such dates, respectively. Our Offices and Other Rentals segment generated operating income of Ps. 10.6 million and Ps. 6.7 million for the financial years ended June 30, 2013 and 2012, respectively, representing 1.5 % and 1.1 %, of our consolidated operating income for such years, respectively.
 
·  
Our “Development and Sales of Properties” segment includes the operating results of our acquisition and/or construction of housing and other properties for sale in the ordinary course of business. Our Development and Sales of Properties segment had assets of Ps. 73.8 million and Ps. 74.5 million as of June 30, 2013 and 2012, respectively, representing 12.4 % and 2.2 % of our total consolidated assets at such dates, respectively. Our Development and Sales of Properties segment generated operating income of Ps. 0.4 million and Ps. 19.9 million for the financial years ended June 30, 2013 and 2012, respectively, representing 0.1 % and 3.2 %, of our consolidated operating income for such years, respectively.
 
·  
Our “Financial Operations and Others” segment includes the income or loss generated by our associate Tarshop S.A. and residual financial operations from our subsidiary Apsamedia. Both Tarshop’s and Apsamedia’s operations consist primarily of lending and servicing activities related to the credit card and personal loan products offered to consumers at retail venues. Our Financial Operations and Others segment had assets of Ps. 39.1 million and Ps. 36.6 million as of June 30, 2013 and 2012, respectively, representing 2.1 % and 2.1 % of our total consolidated assets at such dates, respectively. Our Financial Operations and Others segment generated operating income of Ps. 0.8 million and Ps. 5.7 million for the financial years ended June 30, 2013 and 2012, respectively, representing 0.1 % and 0.9 %, of our consolidated operating income for such years, respectively.

Our major shareholder is IRSA, which as of June 30, 2013, owned 95.7% of our outstanding capital. IRSA is an Argentine real estate company engaged in a diverse range of activities, whose shares are listed on the Bolsa de Comercio de Buenos Aires and the New York Stock Exchange.

Business Strategy

Our main goal is to maximize shareholder value. By using our know how in Argentina’s shopping centers industry, as well as our leading position, we aspire to generate sustainable cash flow growth and long-term appreciation for our real estate assets.

Investment Strategy. We endeavor to avail ourselves of the unmet demand for shopping venues in different urban areas in the region as well as to optimize our clients’ shopping experience. Our goal is to develop new shopping centers in urban areas with attractive growth prospects, including the Buenos Aires metropolitan area, some provincial cities in Argentina and in that sense we also are evaluating investments abroad Argentina. It is vital for the deployment of our strategy to keep developing business with our more than 1,000 retail brands that make up our select group of tenants, in order to have an adequate tenant mix for each case in particular.

Our investment strategy consists primarily of the following:
 
·  
Selectively developing new shopping centers. Through different business formats in areas that are either densely populated or that display appealing growth prospects. We presently have land reserves for future shopping centers development. These properties are located in the City of Buenos Aires, Luján, Neuquén, Tucumán and Paraná.
 
 
·  
Selectively acquiring shopping centers. Which we believe will benefit from our, know-how, centralized management, tenant relationships and leasing strategies, entering new markets and fueling new synergies with our asset portfolio.
 
·  
Expanding and improving our properties. By either renovating, re-developing, enhancing or refurbishing our properties. In so doing, we aspire to render properties more attractive for potential tenants or for potential lease renewals and/or to optimize under-operated land or leasable space. This will allows us to improve our positioning and to increase our revenues with a proportionately lesser rise in our operating costs.
 
·  
Developing real estate, residential and commercial projects that are ancillary to our shopping centers. We seek to generate mutual benefits amongst the various properties in our portfolio through an increase in our shopping centers’ visitor turnout and an appreciation in the value of the surrounding real estate projects.
 
Operational Strategy. Our central operational strategy consists in maximizing growth and profitability at our shopping centers through an increase in our tenants’ sales resulting from the best tenant mix possible for each new lease. Besides, this continued growth allows us to distribute our operating costs more efficiently. We aspire to attain these objectives by implementing the following actions:
 
·  
Continuous Improvement in our Shopping Centers. We plan to continue to improve our different offerings with a view to an outstanding supply. Against this backdrop, we will continue to renovate our properties to keep them modern and embellished and for customers to have an excellent experience at our properties which will attract more retail consumers to our shopping centers whilst simultaneously maintaining competitive occupancy costs to our tenants.
 
·  
Optimum tenant base and lease conditions. We endeavor to maintain high occupancy levels at our shopping centers by leasing and re-leasing these properties to a diversified group of tenants with highly renowned brands, credit-worthiness and attractive offerings in order to attain higher rentals per square meter.
 
·  
Strengthening our relationship with our tenants. By building on our relationship with our shopping centers tenants we increase the spectrum of the products and services offered: we provide them with administrative advice and suggestions concerning their initiatives and marketing tools. Such a business relationship is of the essence for launching new undertakings.
 
·  
Improving brand awareness and loyalty with consumers and tenants. We have a valuable and renowned group of brands in terms of shopping centers and we continuously strive to improve brand recognition and consumers and tenants loyalty with aggressive marketing campaigns. To become consumers’ favorite brand of shopping centers we will launch advertising campaigns, organize promotional events and engage in different marketing initiatives aimed at attracting local consumers and tourists through a proposal that is exceedingly better than traditional street-level storefronts and then other shopping centers based on offerings tailored to the preferences of our end consumers. We also seek to add value to our commercial offerings through the best entertainment and food court alternatives to foster visit frequency and duration, in particular from young women, families and tourists.
 
·  
Improving operating margins. We want to avail ourselves of our consolidated management capacity to attain scale economies and cost savings in each shopping center with a view to improving our consolidated operating margins. In this respect, we seek to implement and share good management practices to maintain a solid financial position to support our future growth.
 
Our headquarters are located at Moreno 877, 22nd floor, (C1091AAQ) City of Buenos Aires, Argentina. Our telephone number is + (54 11) 4323-7449.

Shopping Centers

Overview

As of June 30, 2013, we owned and/or operated the following thirteen shopping centers in Argentina:

Shopping Center
 
Effective Interest
 
Location
Paseo Alcorta
    100 %
City of Buenos Aires, Argentina
Patio Bullrich
    100 %
City of Buenos Aires, Argentina
Abasto
    100 %
City of Buenos Aires, Argentina
Alto Palermo
    100 %
City of Buenos Aires, Argentina
Buenos Aires Design
    53.684 %
City of Buenos Aires, Argentina
Dot Baires Shopping
    80 %
City of Buenos Aires, Argentina
Alto Avellaneda
    100 %
Buenos Aires, Argentina
Soleil Premium Outlet
    100 %
Buenos Aires, Argentina
Alto Noa
    100 %
Salta, Argentina
Alto Rosario
    100 %
Santa Fe, Argentina
Mendoza Plaza
    100 %
Mendoza, Argentina
Córdoba Shopping Villa Cabrera
    100 %
Córdoba, Argentina
La Ribera Shopping
    50 %
Santa Fe, Argentina

Tenant Retail Sales (1)

The following table sets forth the total approximate tenant retail sales in pesos at the shopping centers in which we had an interest for the fiscal years stated below:

   
2013
   
2012
   
Var
 
Abasto
    1,938,965,132       1,537,349,000       26.1 %
Alto Palermo
    1,609,773,862       1,304,634,155       23.4 %
Alto Avellaneda
    1,868,830,321       1,466,931,540       27.4 %
Paseo Alcorta
    822,651,597       667,798,781       23.2 %
Patio Bullrich
    548,286,452       498,544,904       10.0 %
Alto Noa
    609,218,016       500,371,767       21,8 %
Buenos Aires Design
    241,540,767       235,770,387       2.4 %
Mendoza Plaza
    1,206,715,176       929,143,182       29,9 %
Alto Rosario
    1,060,232,481       825,191,098       28.5 %
Córdoba Shopping- Villa Cabrera
    432,900,242       340,253,887       27.2 %
Dot Baires Shopping
    1,566,630,421       1,271,165,087       23.2 %
Soleil Premium Outlet Shopping
    366,388,926       254,050,011       44.2 %
La Ribera Shopping (3)
    209,884,472       135,223,709       55.2 %
Total sales (2)
    12,482,017,865       9,966,427,508       25.2 %

(1)
Retail sales based upon information provided to us by retailers and prior owners. The amounts shown reflect 100% of the retail sales of each shopping center, although in certain cases we own less than 100% of such shopping centers.

(2)
Excludes sales from stands and spaces used for special exhibitions.
(3)
Includes accumulated results since acquisition on August 2011.
 
 The following table shows certain information regarding our shopping centers as of June 30, 2013:

   
Date of Acquisition
   
Leaseable Area
   
APSA’s Interest (3)
   
Occupancy(2)
   
Accumulated Annual Rental Income as of fiscal year ended
   
Book Value
(thousands of Ps.) (5)
 
         
sqm (1)
                      2013       2012          
Shopping Centres
                                                   
Abasto (6)
    07/94       37,708       100.0 %     99.8 %     269,921       220,714       140,979  
Alto Palermo
    11/97       18,690       100.0 %     98.5 %     274,018       222,314       85,813  
Alto Avellaneda
    11/97       36,943       100.0 %     99.9 %     190,470       159,309       48,732  
Paseo Alcorta
    06/97       14,141       100.0 %     99.8 %     126,950       101,018       41,328  
Patio Bullrich
    10/98       11,683       100.0 %     99.7 %     103,159       90,086       70,429  
Alto Noa
    03/95       19,141       100.0 %     99.7 %     47,047       39,300       15,115  
Buenos Aires Design
    11/97       13,746       53.7 %     99.9 %     42,432       36,361       10,662  
Mendoza Plaza
    12/94       27,691       100.0 %     97.1 %     101,419       81,822       71,303  
Alto Rosario (6)
    11/04       42,238       100.0 %     97.7 %     123,510       97,656       70,598  
Córdoba Shopping –Villa Cabrera
    12/06       15,106       100.0 %     100.0 %     58,359       47,160       58,240  
Dot Baires Shopping
    05/09       49,719       80.0 %     99.4 %     189,271       150,503       498,680  
Soleil
    07/10       13,609       100.0 %     100.0 %     45,039       34,564       91,380  
La Ribera
    09/11       8,378       50.0 %     97.7 %     11,910       3,833       18,123  
                                                         
GENERAL TOTAL
            308,793               99.1 %     1,622,346       1,321,589       1,221,382  

Notes:
(1) Total leaseable area in each property. Excludes common areas and parking spaces.
(2) Calculated dividing occupied square meters by leaseable area on the last day of the period.
(3) APSA’s effective interest in each of its business units. IRSA has a 95.69% interest in APSA.
(4) Corresponds to total leases, consolidated as per the Technical Resolution 21 method.
(5) Cost of acquisition plus improvements, less accumulated depreciation, plus adjustment for inflation, less allowance for impairment in value, plus recovery of allowances, if applicable.
(6) Excludes Museo de los Niños (3,732 in Abasto and 1,261 in Alto Rosario).

 
 
Accumulated Sales per type of Business

   
2013
   
2012
   
Var
 
   
(In millions of Ps.)
       
Anchor Store
    869.5       708.2       22.8 %
Clothes and footwear
    6,149.9       4,932.8       24.7 %
Entertainment
    461.5       351.5       31.3 %
Home
    2,322.6       1,795.6       29.3 %
Restaurant
    1,161.5       937.4       23.9 %
Miscellaneous
    1,438.2       1,186.2       21.2 %
Services
    78.8       54.7       44.1 %
Total
    12,482.0       9,966.4       25.2 %

Occupancy Rate

The following table sets forth the occupancy rate expressed as a percentage of the gross leasable area as of the dates stated at the end of the following fiscal years:

   
2013
   
2012
 
Abasto
    99.8 %     99.1 %
Alto Palermo
    98.5 %     98.3 %
Alto Avellaneda
    99.9 %     96.1 %
Paseo Alcorta
    99.8 %     100.0 %
Patio Bullrich
    99.7 %     100.0 %
Alto Noa
    99.7 %     98.9 %
Buenos Aires Design
    99.0 %     100.0 %
Mendoza Plaza
    97.1 %     96.4 %
Alto Rosario
    97.7 %     97.6 %
Córdoba Shopping Villa Cabrera
    100.0 %     99.6 %
Dot Baires Shopping
    99.4 %     99.4 %
Soleil Premium Outlet Shopping
    100.0 %     100.0 %
La Ribera Shopping
    97.7 %     98.7 %
Overall Average
    99.1 %     98.8 %

Rental Price

The following table shows the annual average rental price per square meter for the fiscal years ended June 30, 2013 and 2012 (1):

   
2013
   
2012
   
Var
 
Abasto
    7,337.5       5,895.2       24.5 %
Alto Palermo
    14,442.2       11,802.1       22.4 %
Alto Avellaneda
    5,155.8       4,312.3       19.6 %
Buenos Aires Design
    3,086.9       2,640.8       16.9 %
Paseo Alcorta
    8,977.5       7,161.0       25.4 %
Patio Bullrich
    8,829.8       7,710.3       14.5 %
Alto Noa
    2,457.9       2,064.3       19.1 %
Alto Rosario
    4,460.2       3,526.5       26.5 %
Mendoza Plaza
    2,401.2       1,937.2       24.0 %
Córdoba Shopping- Villa Cabrera
    3,863.4       3,104.6       24.4 %
Dot Baires Shopping
    3,806.8       3,038.8       25.3 %
Soleil Premium Outlet Shopping
    3,309.5       2,349.3       40.9 %
La Ribera Shopping
    1,421.5       497.1       186.1 %

(1)
Corresponds to total consolidated rental prices according to the method set forth by the IFRS divided by gross leasable square meters.

Expiration of Lease Agreements

The following table sets forth the schedule of estimated lease expirations for our shopping centers for leases in effect as of June 30, 2013, assuming that none of the tenants exercise renewal options or terminate their leases early:

Agreements Expiration
 
Number of Agreements (1)
   
Square Meters to Expire
   
Percentage to Expire
   
Amount (Ps.)
   
Percentage of Agreements
 
2014
    585       87,733       28 %     164,571,170       32 %
2015
    405       58,368       19 %     143,851,800       28 %
2016
    374       58,771       19 %     146,057,908       27 %
2017 and subsequent years
    116       103,921       34 %     67,012,725       13 %
Total (2)
    1,480       308,793       100 %     521,493,603       100 %

(1)  
Including the vacant stores as of June 30, 2013. A lease may be associated to one or more stores.
 
(2)  
Including the base rent and does not reflect our ownership interest in each property.
 
New and Renewed Leases

The following table sets forth certain information about leasing activity as of June 30, 2013.
                                                                                                                                                                                                        
Type of Business
 
Number of Agreements
   
Amount (Ps.)
   
Annual Leasing commission (Ps.)
   
Average Base Rent per square meter (Ps.)
New and Renewed
   
Average Base Rent per square meter (Ps.)
Former leases
   
Not Renewed Leases
Number
   
Not Renewed Leases
Amount(Ps.)
 
Clothes and footwear
    402       143,439,360       10,962,405       3,155       2,185       439       165,800,899  
Restaurant
    57       15,909,024       1,054,736       2,382       1,480       146       35,736,957  
Entertainment
    7       852,000       47,620       288       359       22       16,832,484  
 Home     38        10,499,484        767,261        1,617        1,353        52        13,835,684  
 Houseware     20        9,375,600        636,586        1,852        1,327        24        23,869,401  
 Other     110        30,897,228         2,224,320       1,902        1,437        163         54,445,483  
 Total (1)     634       210,972,696       15,692,928       11,195       8,141       846